Correlation Between Franklin Federal and Simt Small

Can any of the company-specific risk be diversified away by investing in both Franklin Federal and Simt Small 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 Simt Small 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 Simt Small Cap, you can compare the effects of market volatilities on Franklin Federal and Simt Small 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 Simt Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Federal and Simt Small.

Diversification Opportunities for Franklin Federal and Simt Small

0.51

Correlation Coefficient

Franklin Federal  Simt Small

Very weak diversification

The 3 months correlation between Franklin and Simt is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Federal Limited Term and Simt Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simt Small Cap 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 Simt Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Simt Small Cap has no effect on the direction of Franklin Federal i.e., Franklin Federal and Simt Small go up and down completely randomly.

Pair Corralation between Franklin Federal and Simt Small

Assuming the 90 days horizon Franklin Federal is expected to generate 25.41 times less return on investment than Simt Small. But when comparing it to its historical volatility, Franklin Federal Limited Term is 10.88 times less risky than Simt Small. It trades about 0.06 of its potential returns per unit of risk. Simt Small Cap is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,644  in Simt Small Cap on September 15, 2024 and sell it today you would earn a total of  363.00  from holding Simt Small Cap or generate 9.96% return on investment over 90 days.

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

Franklin Federal Limited Term  vs.  Simt Small Cap

Franklin Federal Lim

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Federal Limited Term are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. 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.

Simt Small Cap

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Simt Small Cap are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Simt Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Franklin Federal and Simt Small

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

The idea behind Franklin Federal Limited Term and Simt Small Cap 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.