Correlation Between Franklin Federal and Prudential Short-term

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

By analyzing existing cross correlation between Franklin Federal Limited Term and Prudential Short Term Porate, you can compare the effects of market volatilities on Franklin Federal and Prudential 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 Federal with a short position of Prudential Short-term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Federal and Prudential Short-term.

Diversification Opportunities for Franklin Federal and Prudential Short-term

0.76

Correlation Coefficient

Franklin Federal  Prudential Short-term

Poor diversification

The 3 months correlation between Franklin and Prudential is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Federal Limited Term and Prudential Short Term Porate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Short Term and Franklin Federal 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 Federal Limited Term are associated (or correlated) with Prudential 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 Prudential Short Term has no effect on the direction of Franklin Federal i.e., Franklin Federal and Prudential Short-term go up and down completely randomly.

Pair Corralation between Franklin Federal and Prudential Short-term

Assuming the 90 days horizon Franklin Federal Limited Term is expected to under-perform the Prudential Short-term. In addition to that, Franklin Federal is 1.11 times more volatile than Prudential Short Term Porate. It trades about -0.32 of its total potential returns per unit of risk. Prudential Short Term Porate is currently generating about -0.32 per unit of volatility. If you would invest  1,066  in Prudential Short Term Porate on October 17, 2024 and sell it today you would lose (7.00) from holding Prudential Short Term Porate or give up 0.66% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.0%
Values	Daily Returns

Franklin Federal Limited Term  vs.  Prudential Short Term Porate

Franklin Federal Lim

Risk-Adjusted Performance

0 of 100

Very Weak

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

Prudential Short Term

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prudential Short Term Porate has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Prudential 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 Federal and Prudential Short-term

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

The idea behind Franklin Federal Limited Term and Prudential Short Term Porate 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.