Correlation Between Franklin Lifesmart and Fidelity Advisor

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

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

Diversification Opportunities for Franklin Lifesmart and Fidelity Advisor

0.7

Correlation Coefficient

Franklin Lifesmart  Fidelity Advisor

Poor diversification

The 3 months correlation between Franklin and Fidelity is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Lifesmart Retirement and Fidelity Advisor Overseas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Advisor Overseas and Franklin Lifesmart 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 Lifesmart Retirement are associated (or correlated) with Fidelity Advisor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Advisor Overseas has no effect on the direction of Franklin Lifesmart i.e., Franklin Lifesmart and Fidelity Advisor go up and down completely randomly.

Pair Corralation between Franklin Lifesmart and Fidelity Advisor

Assuming the 90 days horizon Franklin Lifesmart is expected to generate 52.7 times less return on investment than Fidelity Advisor. But when comparing it to its historical volatility, Franklin Lifesmart Retirement is 2.53 times less risky than Fidelity Advisor. It trades about 0.01 of its potential returns per unit of risk. Fidelity Advisor Overseas is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,216  in Fidelity Advisor Overseas on December 30, 2024 and sell it today you would earn a total of  241.00  from holding Fidelity Advisor Overseas or generate 7.49% return on investment over 90 days.

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

Franklin Lifesmart Retirement  vs.  Fidelity Advisor Overseas

Franklin Lifesmart

Risk-Adjusted Performance

Very Weak

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

Fidelity Advisor Overseas

Risk-Adjusted Performance

OK

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

Pair Trading with Franklin Lifesmart and Fidelity Advisor

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

The idea behind Franklin Lifesmart Retirement and Fidelity Advisor Overseas 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.