Correlation Between Franklin Liberty and First Trust

Can any of the company-specific risk be diversified away by investing in both Franklin Liberty and First Trust 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 First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Franklin Liberty High and First Trust RBA, you can compare the effects of market volatilities on Franklin Liberty and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Liberty and First Trust.

Diversification Opportunities for Franklin Liberty and First Trust

0.4

Correlation Coefficient

Franklin Liberty  First Trust

Very weak diversification

The 3 months correlation between Franklin and First is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Liberty High and First Trust RBA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust RBA 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 High are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust RBA has no effect on the direction of Franklin Liberty i.e., Franklin Liberty and First Trust go up and down completely randomly.

Pair Corralation between Franklin Liberty and First Trust

Given the investment horizon of 90 days Franklin Liberty High is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, Franklin Liberty High is 4.11 times less risky than First Trust. The etf trades about -0.01 of its potential returns per unit of risk. The First Trust RBA is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  3,570  in First Trust RBA on September 16, 2024 and sell it today you would earn a total of  322.00  from holding First Trust RBA or generate 9.02% return on investment over 90 days.

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

Franklin Liberty High  vs.  First Trust RBA

Franklin Liberty High

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin Liberty High has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, Franklin Liberty is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

First Trust RBA

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust RBA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting forward indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Franklin Liberty and First Trust

The main advantage of trading using opposite Franklin Liberty and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin Liberty position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.

The idea behind Franklin Liberty High and First Trust RBA 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.