Correlation Between Franklin FTSE and KraneShares MSCI

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

By analyzing existing cross correlation between Franklin FTSE Japan and KraneShares MSCI All, you can compare the effects of market volatilities on Franklin FTSE and KraneShares MSCI 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 FTSE with a short position of KraneShares MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin FTSE and KraneShares MSCI.

Diversification Opportunities for Franklin FTSE and KraneShares MSCI

0.66

Correlation Coefficient

Franklin FTSE  KraneShares MSCI

Poor diversification

The 3 months correlation between Franklin and KraneShares is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Franklin FTSE Japan and KraneShares MSCI All in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KraneShares MSCI All and Franklin FTSE 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 FTSE Japan are associated (or correlated) with KraneShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KraneShares MSCI All has no effect on the direction of Franklin FTSE i.e., Franklin FTSE and KraneShares MSCI go up and down completely randomly.

Pair Corralation between Franklin FTSE and KraneShares MSCI

Given the investment horizon of 90 days Franklin FTSE Japan is expected to under-perform the KraneShares MSCI. But the etf apears to be less risky and, when comparing its historical volatility, Franklin FTSE Japan is 2.2 times less risky than KraneShares MSCI. The etf trades about -0.02 of its potential returns per unit of risk. The KraneShares MSCI All is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,514  in KraneShares MSCI All on December 2, 2024 and sell it today you would lose (5.00) from holding KraneShares MSCI All or give up 0.33% of portfolio value over 90 days.

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

Franklin FTSE Japan  vs.  KraneShares MSCI All

Franklin FTSE Japan

Risk-Adjusted Performance

Very Weak

Over the last 90 days Franklin FTSE Japan has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward-looking indicators, Franklin FTSE is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

KraneShares MSCI All

Risk-Adjusted Performance

Very Weak

Over the last 90 days KraneShares MSCI All has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, KraneShares MSCI is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Franklin FTSE and KraneShares MSCI

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

The idea behind Franklin FTSE Japan and KraneShares MSCI All 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.