Correlation Between Franklin Natural and Gmo International

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

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

Diversification Opportunities for Franklin Natural and Gmo International

0.24

Correlation Coefficient

Franklin Natural  Gmo International

Modest diversification

The 3 months correlation between Franklin and GMO is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Natural Resources and Gmo International Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gmo International Equity and Franklin Natural 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 Natural Resources are associated (or correlated) with Gmo International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gmo International Equity has no effect on the direction of Franklin Natural i.e., Franklin Natural and Gmo International go up and down completely randomly.

Pair Corralation between Franklin Natural and Gmo International

Assuming the 90 days horizon Franklin Natural is expected to generate 1.28 times less return on investment than Gmo International. In addition to that, Franklin Natural is 1.31 times more volatile than Gmo International Equity. It trades about 0.12 of its total potential returns per unit of risk. Gmo International Equity is currently generating about 0.2 per unit of volatility. If you would invest  2,802  in Gmo International Equity on December 29, 2024 and sell it today you would earn a total of  283.00  from holding Gmo International Equity or generate 10.1% return on investment over 90 days.

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

Franklin Natural Resources  vs.  Gmo International Equity

Franklin Natural Res

Risk-Adjusted Performance

OK

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

Gmo International Equity

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gmo International Equity are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Gmo International may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Franklin Natural and Gmo International

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

The idea behind Franklin Natural Resources and Gmo International Equity 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.