Correlation Between GM and Franklin Liberty

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

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

Diversification Opportunities for GM and Franklin Liberty

0.85

Correlation Coefficient

GM  Franklin Liberty

Very poor diversification

The 3 months correlation between GM and Franklin is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Franklin Liberty Senior in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Liberty Senior and GM 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 General Motors 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 Senior has no effect on the direction of GM i.e., GM and Franklin Liberty go up and down completely randomly.

Pair Corralation between GM and Franklin Liberty

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Franklin Liberty. In addition to that, GM is 34.19 times more volatile than Franklin Liberty Senior. It trades about -0.17 of its total potential returns per unit of risk. Franklin Liberty Senior is currently generating about 0.46 per unit of volatility. If you would invest  2,419  in Franklin Liberty Senior on September 12, 2024 and sell it today you would earn a total of  18.00  from holding Franklin Liberty Senior or generate 0.74% return on investment over 90 days.

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

General Motors  vs.  Franklin Liberty Senior

General Motors

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

Franklin Liberty Senior

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Liberty Senior are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, Franklin Liberty is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with GM and Franklin Liberty

The main advantage of trading using opposite GM and Franklin Liberty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors and Franklin Liberty Senior 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.