Correlation Between American Funds and Franklin Mutual

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

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

Diversification Opportunities for American Funds and Franklin Mutual

0.73

Correlation Coefficient

American Funds  Franklin Mutual

Poor diversification

The 3 months correlation between American and Franklin is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Growth and Franklin Mutual Shares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Mutual Shares and American Funds 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 American Funds Growth are associated (or correlated) with Franklin Mutual. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Mutual Shares has no effect on the direction of American Funds i.e., American Funds and Franklin Mutual go up and down completely randomly.

Pair Corralation between American Funds and Franklin Mutual

Assuming the 90 days horizon American Funds Growth is expected to generate 1.23 times more return on investment than Franklin Mutual. However, American Funds is 1.23 times more volatile than Franklin Mutual Shares. It trades about -0.09 of its potential returns per unit of risk. Franklin Mutual Shares is currently generating about -0.14 per unit of risk. If you would invest  2,740  in American Funds Growth on December 1, 2024 and sell it today you would lose (176.00) from holding American Funds Growth or give up 6.42% of portfolio value over 90 days.

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

American Funds Growth  vs.  Franklin Mutual Shares

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 technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

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.

Pair Trading with American Funds and Franklin Mutual

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

The idea behind American Funds Growth and Franklin Mutual Shares 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.