Correlation Between Franklin Small and Invesco Charter

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

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

Diversification Opportunities for Franklin Small and Invesco Charter

0.94

Correlation Coefficient

Franklin Small  Invesco Charter

Almost no diversification

The 3 months correlation between Franklin and Invesco is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Small Cap and Invesco Charter Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Charter and Franklin Small 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 Cap are associated (or correlated) with Invesco Charter. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Charter has no effect on the direction of Franklin Small i.e., Franklin Small and Invesco Charter go up and down completely randomly.

Pair Corralation between Franklin Small and Invesco Charter

Assuming the 90 days horizon Franklin Small Cap is expected to under-perform the Invesco Charter. In addition to that, Franklin Small is 1.32 times more volatile than Invesco Charter Fund. It trades about -0.14 of its total potential returns per unit of risk. Invesco Charter Fund is currently generating about -0.08 per unit of volatility. If you would invest  2,153  in Invesco Charter Fund on December 30, 2024 and sell it today you would lose (116.00) from holding Invesco Charter Fund or give up 5.39% of portfolio value over 90 days.

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

Franklin Small Cap  vs.  Invesco Charter Fund

Franklin Small Cap

Risk-Adjusted Performance

Very Weak

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

Invesco Charter

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Franklin Small Cap and Invesco Charter 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.