Correlation Between Franklin Biotechnology and Federated Municipal

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

By analyzing existing cross correlation between Franklin Biotechnology Discovery and Federated Municipal Ultrashort, you can compare the effects of market volatilities on Franklin Biotechnology and Federated Municipal 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 Biotechnology with a short position of Federated Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Biotechnology and Federated Municipal.

Diversification Opportunities for Franklin Biotechnology and Federated Municipal

-0.46

Correlation Coefficient

Franklin Biotechnology  Federated Municipal

Very good diversification

The 3 months correlation between Franklin and Federated is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Biotechnology Discove and Federated Municipal Ultrashort in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Municipal and Franklin Biotechnology 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 Biotechnology Discovery are associated (or correlated) with Federated Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Municipal has no effect on the direction of Franklin Biotechnology i.e., Franklin Biotechnology and Federated Municipal go up and down completely randomly.

Pair Corralation between Franklin Biotechnology and Federated Municipal

Assuming the 90 days horizon Franklin Biotechnology Discovery is expected to under-perform the Federated Municipal. In addition to that, Franklin Biotechnology is 40.94 times more volatile than Federated Municipal Ultrashort. It trades about -0.25 of its total potential returns per unit of risk. Federated Municipal Ultrashort is currently generating about -0.18 per unit of volatility. If you would invest  1,002  in Federated Municipal Ultrashort on October 6, 2024 and sell it today you would lose (2.00) from holding Federated Municipal Ultrashort or give up 0.2% of portfolio value over 90 days.

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

Franklin Biotechnology Discove  vs.  Federated Municipal Ultrashort

Franklin Biotechnology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin Biotechnology Discovery has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Federated Municipal

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Municipal Ultrashort are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Federated Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Franklin Biotechnology and Federated Municipal

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

The idea behind Franklin Biotechnology Discovery and Federated Municipal Ultrashort 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.