Correlation Between First Trust and Franklin Liberty

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

By analyzing existing cross correlation between First Trust LongShort and Franklin Liberty Systematic, you can compare the effects of market volatilities on First Trust and Franklin Liberty 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 First Trust with a short position of Franklin Liberty. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Franklin Liberty.

Diversification Opportunities for First Trust and Franklin Liberty

0.37

Correlation Coefficient

First Trust  Franklin Liberty

Weak diversification

The 3 months correlation between First and Franklin is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding First Trust LongShort and Franklin Liberty Systematic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Liberty Sys and First Trust 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 First Trust LongShort are associated (or correlated) with Franklin Liberty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Liberty Sys has no effect on the direction of First Trust i.e., First Trust and Franklin Liberty go up and down completely randomly.

Pair Corralation between First Trust and Franklin Liberty

Given the investment horizon of 90 days First Trust LongShort is expected to generate 0.69 times more return on investment than Franklin Liberty. However, First Trust LongShort is 1.44 times less risky than Franklin Liberty. It trades about 0.12 of its potential returns per unit of risk. Franklin Liberty Systematic is currently generating about 0.04 per unit of risk. If you would invest  4,837  in First Trust LongShort on October 27, 2024 and sell it today you would earn a total of  1,970  from holding First Trust LongShort or generate 40.73% return on investment over 90 days.

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

First Trust LongShort  vs.  Franklin Liberty Systematic

First Trust LongShort

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust LongShort are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable essential indicators, First Trust is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Franklin Liberty Sys

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Liberty Systematic are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Franklin Liberty is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with First Trust and Franklin Liberty

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

The idea behind First Trust LongShort and Franklin Liberty Systematic 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.