Correlation Between Franklin Liberty and Columbia Multi

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

By analyzing existing cross correlation between Franklin Liberty Federal and Columbia Multi Sector Municipal, you can compare the effects of market volatilities on Franklin Liberty and Columbia Multi 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 Columbia Multi. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Liberty and Columbia Multi.

Diversification Opportunities for Franklin Liberty and Columbia Multi

0.86

Correlation Coefficient

Franklin Liberty  Columbia Multi

Very poor diversification

The 3 months correlation between Franklin and Columbia is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Liberty Federal and Columbia Multi Sector Municipa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia Multi Sector 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 Federal are associated (or correlated) with Columbia Multi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbia Multi Sector has no effect on the direction of Franklin Liberty i.e., Franklin Liberty and Columbia Multi go up and down completely randomly.

Pair Corralation between Franklin Liberty and Columbia Multi

Given the investment horizon of 90 days Franklin Liberty Federal is expected to under-perform the Columbia Multi. In addition to that, Franklin Liberty is 1.25 times more volatile than Columbia Multi Sector Municipal. It trades about -0.03 of its total potential returns per unit of risk. Columbia Multi Sector Municipal is currently generating about -0.02 per unit of volatility. If you would invest  2,023  in Columbia Multi Sector Municipal on December 29, 2024 and sell it today you would lose (10.00) from holding Columbia Multi Sector Municipal or give up 0.49% of portfolio value over 90 days.

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

Franklin Liberty Federal  vs.  Columbia Multi Sector Municipa

Franklin Liberty Federal

Risk-Adjusted Performance

Very Weak

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

Columbia Multi Sector

Risk-Adjusted Performance

Very Weak

Over the last 90 days Columbia Multi Sector Municipal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Columbia Multi is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Franklin Liberty and Columbia Multi

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

The idea behind Franklin Liberty Federal and Columbia Multi Sector Municipal 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.