Correlation Between Franklin Real and Franklin Natural

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

By analyzing existing cross correlation between Franklin Real Estate and Franklin Natural Resources, you can compare the effects of market volatilities on Franklin Real and Franklin Natural 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 Real with a short position of Franklin Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Real and Franklin Natural.

Diversification Opportunities for Franklin Real and Franklin Natural

0.25

Correlation Coefficient

Franklin Real  Franklin Natural

Modest diversification

The 3 months correlation between Franklin and Franklin is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Real Estate and Franklin Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Natural Res and Franklin Real 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 Real Estate are associated (or correlated) with Franklin Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Natural Res has no effect on the direction of Franklin Real i.e., Franklin Real and Franklin Natural go up and down completely randomly.

Pair Corralation between Franklin Real and Franklin Natural

Assuming the 90 days horizon Franklin Real Estate is expected to under-perform the Franklin Natural. In addition to that, Franklin Real is 1.3 times more volatile than Franklin Natural Resources. It trades about -0.15 of its total potential returns per unit of risk. Franklin Natural Resources is currently generating about -0.06 per unit of volatility. If you would invest  3,100  in Franklin Natural Resources on November 28, 2024 and sell it today you would lose (125.00) from holding Franklin Natural Resources or give up 4.03% of portfolio value over 90 days.

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

Franklin Real Estate  vs.  Franklin Natural Resources

Franklin Real Estate

Risk-Adjusted Performance

Very Weak

Over the last 90 days Franklin Real Estate 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 technical and fundamental indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Franklin Natural Res

Risk-Adjusted Performance

Very Weak

Over the last 90 days Franklin Natural Resources has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Franklin Natural 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 Real and Franklin Natural

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

The idea behind Franklin Real Estate and Franklin Natural Resources 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.