Correlation Between GM and Franklin Templeton

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

Diversification Opportunities for GM and Franklin Templeton

0.72

Correlation Coefficient

GM  Franklin Templeton

Poor diversification

The 3 months correlation between GM and Franklin is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Franklin Templeton ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Templeton ETF 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 Templeton. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Templeton ETF has no effect on the direction of GM i.e., GM and Franklin Templeton go up and down completely randomly.

Pair Corralation between GM and Franklin Templeton

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Franklin Templeton. In addition to that, GM is 2.49 times more volatile than Franklin Templeton ETF. It trades about -0.11 of its total potential returns per unit of risk. Franklin Templeton ETF is currently generating about 0.26 per unit of volatility. If you would invest  6,561  in Franklin Templeton ETF on September 17, 2024 and sell it today you would earn a total of  356.00  from holding Franklin Templeton ETF or generate 5.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

General Motors  vs.  Franklin Templeton ETF

General Motors

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Franklin Templeton ETF

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Templeton ETF are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Franklin Templeton displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Franklin Templeton

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

The idea behind General Motors and Franklin Templeton ETF 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.