Correlation Between HP and Franklin Liberty

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

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

Diversification Opportunities for HP and Franklin Liberty

-0.31

Correlation Coefficient

HP  Franklin Liberty

Very good diversification

The 3 months correlation between HP and Franklin is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc and Franklin Liberty International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Liberty Int and HP 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 HP Inc 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 Int has no effect on the direction of HP i.e., HP and Franklin Liberty go up and down completely randomly.

Pair Corralation between HP and Franklin Liberty

Considering the 90-day investment horizon HP Inc is expected to generate 9.14 times more return on investment than Franklin Liberty. However, HP is 9.14 times more volatile than Franklin Liberty International. It trades about 0.01 of its potential returns per unit of risk. Franklin Liberty International is currently generating about 0.03 per unit of risk. If you would invest  3,424  in HP Inc on September 18, 2024 and sell it today you would lose (5.00) from holding HP Inc or give up 0.15% of portfolio value over 90 days.

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

HP Inc  vs.  Franklin Liberty International

HP Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HP Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, HP is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Franklin Liberty Int

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Liberty International are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong forward indicators, Franklin Liberty is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with HP and Franklin Liberty

The main advantage of trading using opposite HP and Franklin Liberty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HP 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 HP Inc and Franklin Liberty International 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.