Correlation Between Franklin Mutual and American Funds

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

By analyzing existing cross correlation between Franklin Mutual Shares and American Funds Growth, you can compare the effects of market volatilities on Franklin Mutual and American Funds 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 Mutual with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Mutual and American Funds.

Diversification Opportunities for Franklin Mutual and American Funds

0.74

Correlation Coefficient

Franklin Mutual  American Funds

Poor diversification

The 3 months correlation between Franklin and American is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Mutual Shares and American Funds Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Growth and Franklin Mutual 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 Mutual Shares are associated (or correlated) with American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Growth has no effect on the direction of Franklin Mutual i.e., Franklin Mutual and American Funds go up and down completely randomly.

Pair Corralation between Franklin Mutual and American Funds

Assuming the 90 days horizon Franklin Mutual Shares is expected to under-perform the American Funds. But the mutual fund apears to be less risky and, when comparing its historical volatility, Franklin Mutual Shares is 1.23 times less risky than American Funds. The mutual fund trades about -0.14 of its potential returns per unit of risk. The American Funds Growth is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  2,641  in American Funds Growth on December 2, 2024 and sell it today you would lose (209.00) from holding American Funds Growth or give up 7.91% of portfolio value over 90 days.

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

Franklin Mutual Shares  vs.  American Funds Growth

Franklin Mutual Shares

Risk-Adjusted Performance

Very Weak

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

American Funds Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Funds Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental 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 Mutual and American Funds

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

The idea behind Franklin Mutual Shares and American Funds Growth 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.