Correlation Between Franklin Government and Short Term

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

By analyzing existing cross correlation between Franklin Government Money and Short Term Bond Fund, you can compare the effects of market volatilities on Franklin Government and Short Term 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 Government with a short position of Short Term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Government and Short Term.

Diversification Opportunities for Franklin Government and Short Term

-0.1

Correlation Coefficient

Franklin Government  Short Term

Good diversification

The 3 months correlation between Franklin and Short is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Government Money and Short Term Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Term Bond and Franklin Government 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 Government Money are associated (or correlated) with Short Term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Term Bond has no effect on the direction of Franklin Government i.e., Franklin Government and Short Term go up and down completely randomly.

Pair Corralation between Franklin Government and Short Term

Assuming the 90 days horizon Franklin Government is expected to generate 2.56 times less return on investment than Short Term. But when comparing it to its historical volatility, Franklin Government Money is 1.43 times less risky than Short Term. It trades about 0.09 of its potential returns per unit of risk. Short Term Bond Fund is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  883.00  in Short Term Bond Fund on September 26, 2024 and sell it today you would earn a total of  23.00  from holding Short Term Bond Fund or generate 2.6% return on investment over 90 days.

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

Franklin Government Money  vs.  Short Term Bond Fund

Franklin Government Money

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Government Money are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Franklin Government is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Short Term Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Short Term Bond Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental drivers, Short Term 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 Government and Short Term

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

The idea behind Franklin Government Money and Short Term Bond Fund 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.