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 Intermediate and American Century Diversified, 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

0.93

Correlation Coefficient

Franklin Liberty  American Century

Almost no diversification

The 3 months correlation between Franklin and American is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Liberty Intermediate and American Century Diversified in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Century Div 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 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 Div 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 Intermediate is expected to generate 1.2 times more return on investment than American Century. However, Franklin Liberty is 1.2 times more volatile than American Century Diversified. It trades about -0.1 of its potential returns per unit of risk. American Century Diversified is currently generating about -0.19 per unit of risk. If you would invest  2,471  in Franklin Liberty Intermediate on September 25, 2024 and sell it today you would lose (17.00) from holding Franklin Liberty Intermediate or give up 0.69% 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.  American Century Diversified

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 newest stock price confusion, may contribute to short-horizon losses for the traders.

American Century Div

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Century Diversified has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, American Century is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

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 Intermediate and American Century Diversified 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.