Correlation Between Franklin Lifesmart and Baird Smallcap

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

By analyzing existing cross correlation between Franklin Lifesmart Retirement and Baird Smallcap Value, you can compare the effects of market volatilities on Franklin Lifesmart and Baird Smallcap 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 Lifesmart with a short position of Baird Smallcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Lifesmart and Baird Smallcap.

Diversification Opportunities for Franklin Lifesmart and Baird Smallcap

0.21

Correlation Coefficient

Franklin Lifesmart  Baird Smallcap

Modest diversification

The 3 months correlation between Franklin and Baird is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Lifesmart Retirement and Baird Smallcap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baird Smallcap Value and Franklin Lifesmart 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 Lifesmart Retirement are associated (or correlated) with Baird Smallcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baird Smallcap Value has no effect on the direction of Franklin Lifesmart i.e., Franklin Lifesmart and Baird Smallcap go up and down completely randomly.

Pair Corralation between Franklin Lifesmart and Baird Smallcap

Assuming the 90 days horizon Franklin Lifesmart Retirement is expected to generate 0.27 times more return on investment than Baird Smallcap. However, Franklin Lifesmart Retirement is 3.64 times less risky than Baird Smallcap. It trades about 0.06 of its potential returns per unit of risk. Baird Smallcap Value is currently generating about -0.1 per unit of risk. If you would invest  1,045  in Franklin Lifesmart Retirement on December 21, 2024 and sell it today you would earn a total of  14.00  from holding Franklin Lifesmart Retirement or generate 1.34% return on investment over 90 days.

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

Franklin Lifesmart Retirement  vs.  Baird Smallcap Value

Franklin Lifesmart

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Lifesmart Retirement are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Franklin Lifesmart is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Baird Smallcap Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days Baird Smallcap Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Franklin Lifesmart and Baird Smallcap

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

The idea behind Franklin Lifesmart Retirement and Baird Smallcap Value 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.