Correlation Between Franklin Liberty and IShares Currency

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

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

Diversification Opportunities for Franklin Liberty and IShares Currency

0.64

Correlation Coefficient

Franklin Liberty  IShares Currency

Poor diversification

The 3 months correlation between Franklin and IShares is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Liberty Short and iShares Currency Hedged in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Currency Hedged and Franklin Liberty 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 Liberty Short are associated (or correlated) with IShares Currency. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Currency Hedged has no effect on the direction of Franklin Liberty i.e., Franklin Liberty and IShares Currency go up and down completely randomly.

Pair Corralation between Franklin Liberty and IShares Currency

Given the investment horizon of 90 days Franklin Liberty is expected to generate 3.09 times less return on investment than IShares Currency. But when comparing it to its historical volatility, Franklin Liberty Short is 5.4 times less risky than IShares Currency. It trades about 0.16 of its potential returns per unit of risk. iShares Currency Hedged is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3,138  in iShares Currency Hedged on October 25, 2024 and sell it today you would earn a total of  97.00  from holding iShares Currency Hedged or generate 3.09% return on investment over 90 days.

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

Franklin Liberty Short  vs.  iShares Currency Hedged

Franklin Liberty Short

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Liberty Short are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Franklin Liberty is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

iShares Currency Hedged

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Currency Hedged are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, IShares Currency 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 Liberty and IShares Currency

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

The idea behind Franklin Liberty Short and iShares Currency Hedged 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.