Correlation Between Fixed Income and Franklin Real

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

By analyzing existing cross correlation between Fixed Income Shares and Franklin Real Estate, you can compare the effects of market volatilities on Fixed Income and Franklin Real 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 Fixed Income with a short position of Franklin Real. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fixed Income and Franklin Real.

Diversification Opportunities for Fixed Income and Franklin Real

0.79

Correlation Coefficient

Fixed Income  Franklin Real

Poor diversification

The 3 months correlation between Fixed and Franklin is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Fixed Income Shares and Franklin Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Real Estate and Fixed Income 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 Fixed Income Shares are associated (or correlated) with Franklin Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Real Estate has no effect on the direction of Fixed Income i.e., Fixed Income and Franklin Real go up and down completely randomly.

Pair Corralation between Fixed Income and Franklin Real

Assuming the 90 days horizon Fixed Income is expected to generate 1.05 times less return on investment than Franklin Real. But when comparing it to its historical volatility, Fixed Income Shares is 3.1 times less risky than Franklin Real. It trades about 0.14 of its potential returns per unit of risk. Franklin Real Estate is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,637  in Franklin Real Estate on December 29, 2024 and sell it today you would earn a total of  46.00  from holding Franklin Real Estate or generate 2.81% return on investment over 90 days.

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

Fixed Income Shares  vs.  Franklin Real Estate

Fixed Income Shares

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fixed Income Shares are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Fixed Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Franklin Real Estate

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Real Estate are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Franklin Real is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Fixed Income and Franklin Real

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

The idea behind Fixed Income Shares and Franklin Real Estate 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.