Correlation Between Franklin Small and T Rowe

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

By analyzing existing cross correlation between Franklin Small Cap and T Rowe Price, you can compare the effects of market volatilities on Franklin Small and T Rowe 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 Small with a short position of T Rowe. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Small and T Rowe.

Diversification Opportunities for Franklin Small and T Rowe

0.36

Correlation Coefficient

Franklin Small  T Rowe

Weak diversification

The 3 months correlation between Franklin and PRINX is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Small Cap and T Rowe Price in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on T Rowe Price and Franklin Small 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 Small Cap are associated (or correlated) with T Rowe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of T Rowe Price has no effect on the direction of Franklin Small i.e., Franklin Small and T Rowe go up and down completely randomly.

Pair Corralation between Franklin Small and T Rowe

Assuming the 90 days horizon Franklin Small Cap is expected to under-perform the T Rowe. In addition to that, Franklin Small is 5.15 times more volatile than T Rowe Price. It trades about -0.45 of its total potential returns per unit of risk. T Rowe Price is currently generating about -0.28 per unit of volatility. If you would invest  1,140  in T Rowe Price on September 27, 2024 and sell it today you would lose (19.00) from holding T Rowe Price or give up 1.67% of portfolio value over 90 days.

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

Franklin Small Cap  vs.  T Rowe Price

Franklin Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

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

T Rowe Price

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days T Rowe Price has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, T Rowe 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 Small and T Rowe

The main advantage of trading using opposite Franklin Small and T Rowe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin Small position performs unexpectedly, T Rowe 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 T Rowe will offset losses from the drop in T Rowe's long position.

The idea behind Franklin Small Cap and T Rowe Price 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.