Correlation Between GM and Franklin Total

Can any of the company-specific risk be diversified away by investing in both GM and Franklin Total 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 Total 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 Total Return, you can compare the effects of market volatilities on GM and Franklin Total 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 Total. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Franklin Total.

Diversification Opportunities for GM and Franklin Total

-0.81

Correlation Coefficient

GM  Franklin Total

Pay attention - limited upside

The 3 months correlation between GM and Franklin is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Franklin Total Return in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Total Return 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 Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Total Return has no effect on the direction of GM i.e., GM and Franklin Total go up and down completely randomly.

Pair Corralation between GM and Franklin Total

Allowing for the 90-day total investment horizon General Motors is expected to generate 8.59 times more return on investment than Franklin Total. However, GM is 8.59 times more volatile than Franklin Total Return. It trades about 0.09 of its potential returns per unit of risk. Franklin Total Return is currently generating about -0.06 per unit of risk. If you would invest  4,833  in General Motors on September 4, 2024 and sell it today you would earn a total of  671.00  from holding General Motors or generate 13.88% return on investment over 90 days.

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

General Motors  vs.  Franklin Total Return

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 weak primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

Franklin Total Return

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with GM and Franklin Total

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

The idea behind General Motors and Franklin Total Return 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.