Correlation Between Franklin Growth and Westwood Quality

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

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

Diversification Opportunities for Franklin Growth and Westwood Quality

0.78

Correlation Coefficient

Franklin Growth  Westwood Quality

Poor diversification

The 3 months correlation between Franklin and Westwood is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Growth Opportunities and Westwood Quality Smallcap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westwood Quality Smallcap and Franklin Growth 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 Growth Opportunities are associated (or correlated) with Westwood Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westwood Quality Smallcap has no effect on the direction of Franklin Growth i.e., Franklin Growth and Westwood Quality go up and down completely randomly.

Pair Corralation between Franklin Growth and Westwood Quality

Assuming the 90 days horizon Franklin Growth is expected to generate 1.57 times less return on investment than Westwood Quality. But when comparing it to its historical volatility, Franklin Growth Opportunities is 1.39 times less risky than Westwood Quality. It trades about 0.12 of its potential returns per unit of risk. Westwood Quality Smallcap is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,185  in Westwood Quality Smallcap on September 4, 2024 and sell it today you would earn a total of  169.00  from holding Westwood Quality Smallcap or generate 7.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.62%
Values	Daily Returns

Franklin Growth Opportunities  vs.  Westwood Quality Smallcap

Franklin Growth Oppo

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Growth Opportunities are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Franklin Growth may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Westwood Quality Smallcap

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Westwood Quality Smallcap are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Westwood Quality may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Franklin Growth and Westwood Quality

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

The idea behind Franklin Growth Opportunities and Westwood Quality Smallcap 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.