Correlation Between Franklin Balance and Franklin Small

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

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

Diversification Opportunities for Franklin Balance and Franklin Small

0.59

Correlation Coefficient

Franklin Balance  Franklin Small

Very weak diversification

The 3 months correlation between Franklin and Franklin is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Balance Sheet and Franklin Small Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Small Mid and Franklin Balance 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 Balance Sheet are associated (or correlated) with Franklin Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Small Mid has no effect on the direction of Franklin Balance i.e., Franklin Balance and Franklin Small go up and down completely randomly.

Pair Corralation between Franklin Balance and Franklin Small

Assuming the 90 days horizon Franklin Balance is expected to generate 7.51 times less return on investment than Franklin Small. But when comparing it to its historical volatility, Franklin Balance Sheet is 1.01 times less risky than Franklin Small. It trades about 0.01 of its potential returns per unit of risk. Franklin Small Mid Cap is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  4,280  in Franklin Small Mid Cap on September 25, 2024 and sell it today you would earn a total of  456.00  from holding Franklin Small Mid Cap or generate 10.65% return on investment over 90 days.

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

Franklin Balance Sheet  vs.  Franklin Small Mid Cap

Franklin Balance Sheet

Risk-Adjusted Performance

0 of 100

Very Weak

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

Franklin Small Mid

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Small Mid Cap are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Franklin Small 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 Balance and Franklin Small

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

The idea behind Franklin Balance Sheet and Franklin Small Mid Cap 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.