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 Senior and Franklin Liberty Short, 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

0.84

Correlation Coefficient

First Trust  Franklin Liberty

Very poor diversification

The 3 months correlation between First and Franklin is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Senior and Franklin Liberty Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Liberty Short 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 Senior 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 Short 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 Senior is expected to generate 1.53 times more return on investment than Franklin Liberty. However, First Trust is 1.53 times more volatile than Franklin Liberty Short. It trades about 0.11 of its potential returns per unit of risk. Franklin Liberty Short is currently generating about 0.09 per unit of risk. If you would invest  4,610  in First Trust Senior on October 6, 2024 and sell it today you would earn a total of  17.00  from holding First Trust Senior or generate 0.37% return on investment over 90 days.

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

First Trust Senior  vs.  Franklin Liberty Short

First Trust Senior

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Senior are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, First Trust is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

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.

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 Senior and Franklin Liberty Short 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.

Check out your portfolio center.

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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.