Correlation Between Franklin Equity and Ab Equity

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

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

Diversification Opportunities for Franklin Equity and Ab Equity

0.92

Correlation Coefficient

Franklin Equity  Ab Equity

Almost no diversification

The 3 months correlation between Franklin and AUIAX is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Equity Income and Ab Equity Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ab Equity Income and Franklin Equity 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 Equity Income are associated (or correlated) with Ab Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ab Equity Income has no effect on the direction of Franklin Equity i.e., Franklin Equity and Ab Equity go up and down completely randomly.

Pair Corralation between Franklin Equity and Ab Equity

Assuming the 90 days horizon Franklin Equity Income is expected to under-perform the Ab Equity. But the mutual fund apears to be less risky and, when comparing its historical volatility, Franklin Equity Income is 1.16 times less risky than Ab Equity. The mutual fund trades about -0.08 of its potential returns per unit of risk. The Ab Equity Income is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  3,544  in Ab Equity Income on October 24, 2024 and sell it today you would lose (189.00) from holding Ab Equity Income or give up 5.33% of portfolio value over 90 days.

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

Franklin Equity Income  vs.  Ab Equity Income

Franklin Equity Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin Equity Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Franklin Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ab Equity Income

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Franklin Equity Income and Ab Equity Income 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.

Check out your portfolio center.

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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.