Correlation Between Franklin Large and Brompton European

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

By analyzing existing cross correlation between Franklin Large Cap and Brompton European Dividend, you can compare the effects of market volatilities on Franklin Large and Brompton European 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 Large with a short position of Brompton European. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Large and Brompton European.

Diversification Opportunities for Franklin Large and Brompton European

0.26

Correlation Coefficient

Franklin Large  Brompton European

Modest diversification

The 3 months correlation between Franklin and Brompton is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Large Cap and Brompton European Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brompton European and Franklin Large 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 Large Cap are associated (or correlated) with Brompton European. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brompton European has no effect on the direction of Franklin Large i.e., Franklin Large and Brompton European go up and down completely randomly.

Pair Corralation between Franklin Large and Brompton European

Assuming the 90 days trading horizon Franklin Large Cap is expected to generate 0.57 times more return on investment than Brompton European. However, Franklin Large Cap is 1.75 times less risky than Brompton European. It trades about 0.32 of its potential returns per unit of risk. Brompton European Dividend is currently generating about -0.01 per unit of risk. If you would invest  4,656  in Franklin Large Cap on September 5, 2024 and sell it today you would earn a total of  293.00  from holding Franklin Large Cap or generate 6.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

Franklin Large Cap  vs.  Brompton European Dividend

Franklin Large Cap

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Large Cap are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Franklin Large displayed solid returns over the last few months and may actually be approaching a breakup point.

Brompton European

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Brompton European Dividend are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Brompton European is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Franklin Large and Brompton European

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

The idea behind Franklin Large Cap and Brompton European Dividend 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.