Correlation Between Franklin Liberty and American Century

Can any of the company-specific risk be diversified away by investing in both Franklin Liberty and American Century at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Franklin Liberty and American Century into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Franklin Liberty Investment and American Century STOXX, you can compare the effects of market volatilities on Franklin Liberty and American Century and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Franklin Liberty with a short position of American Century. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Liberty and American Century.

Diversification Opportunities for Franklin Liberty and American Century

-0.33

Correlation Coefficient

Franklin Liberty  American Century

Very good diversification

The 3 months correlation between Franklin and American is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Liberty Investment and American Century STOXX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Century STOXX and Franklin Liberty is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Franklin Liberty Investment are associated (or correlated) with American Century. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Century STOXX has no effect on the direction of Franklin Liberty i.e., Franklin Liberty and American Century go up and down completely randomly.

Pair Corralation between Franklin Liberty and American Century

Given the investment horizon of 90 days Franklin Liberty is expected to generate 2.86 times less return on investment than American Century. But when comparing it to its historical volatility, Franklin Liberty Investment is 2.08 times less risky than American Century. It trades about 0.1 of its potential returns per unit of risk. American Century STOXX is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  5,667  in American Century STOXX on September 13, 2024 and sell it today you would earn a total of  691.00  from holding American Century STOXX or generate 12.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Franklin Liberty Investment  vs.  American Century STOXX

Franklin Liberty Inv

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin Liberty Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Franklin Liberty is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

American Century STOXX

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Century STOXX are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable essential indicators, American Century is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Franklin Liberty and American Century

The main advantage of trading using opposite Franklin Liberty and American Century positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin Liberty position performs unexpectedly, American Century can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in American Century will offset losses from the drop in American Century's long position.

The idea behind Franklin Liberty Investment and American Century STOXX pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.