Correlation Between Franklin Liberty and IShares National

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

By analyzing existing cross correlation between Franklin Liberty Intermediate and iShares National Muni, you can compare the effects of market volatilities on Franklin Liberty and IShares National 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 IShares National. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Liberty and IShares National.

Diversification Opportunities for Franklin Liberty and IShares National

0.95

Correlation Coefficient

Franklin Liberty  IShares National

Almost no diversification

The 3 months correlation between Franklin and IShares is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Liberty Intermediate and iShares National Muni in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares National Muni 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 Intermediate are associated (or correlated) with IShares National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares National Muni has no effect on the direction of Franklin Liberty i.e., Franklin Liberty and IShares National go up and down completely randomly.

Pair Corralation between Franklin Liberty and IShares National

Given the investment horizon of 90 days Franklin Liberty Intermediate is expected to generate 1.3 times more return on investment than IShares National. However, Franklin Liberty is 1.3 times more volatile than iShares National Muni. It trades about -0.14 of its potential returns per unit of risk. iShares National Muni is currently generating about -0.24 per unit of risk. If you would invest  2,471  in Franklin Liberty Intermediate on September 26, 2024 and sell it today you would lose (23.00) from holding Franklin Liberty Intermediate or give up 0.93% of portfolio value over 90 days.

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

Franklin Liberty Intermediate  vs.  iShares National Muni

Franklin Liberty Int

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin Liberty Intermediate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong primary indicators, Franklin Liberty is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

iShares National Muni

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares National Muni has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, IShares National is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Franklin Liberty and IShares National

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

The idea behind Franklin Liberty Intermediate and iShares National Muni 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.