Correlation Between Franklin Small-mid and The Growth

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

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

Diversification Opportunities for Franklin Small-mid and The Growth

0.97

Correlation Coefficient

Franklin Small-mid  The Growth

Almost no diversification

The 3 months correlation between Franklin and The is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Small Mid Cap and The Growth Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth Equity and Franklin Small-mid 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 Small Mid Cap are associated (or correlated) with The Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth Equity has no effect on the direction of Franklin Small-mid i.e., Franklin Small-mid and The Growth go up and down completely randomly.

Pair Corralation between Franklin Small-mid and The Growth

Assuming the 90 days horizon Franklin Small Mid Cap is expected to under-perform the The Growth. In addition to that, Franklin Small-mid is 1.32 times more volatile than The Growth Equity. It trades about -0.08 of its total potential returns per unit of risk. The Growth Equity is currently generating about -0.09 per unit of volatility. If you would invest  3,964  in The Growth Equity on December 27, 2024 and sell it today you would lose (236.00) from holding The Growth Equity or give up 5.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.36%
Values	Daily Returns

Franklin Small Mid Cap  vs.  The Growth Equity

Franklin Small Mid

Risk-Adjusted Performance

Very Weak

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

Growth Equity

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Growth Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, The Growth 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 Small-mid and The Growth

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

The idea behind Franklin Small Mid Cap and The Growth 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.

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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.