Correlation Between Rational Defensive and Franklin Adjustable

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

By analyzing existing cross correlation between Rational Defensive Growth and Franklin Adjustable Government, you can compare the effects of market volatilities on Rational Defensive and Franklin Adjustable 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 Rational Defensive with a short position of Franklin Adjustable. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rational Defensive and Franklin Adjustable.

Diversification Opportunities for Rational Defensive and Franklin Adjustable

0.26

Correlation Coefficient

Rational Defensive  Franklin Adjustable

Modest diversification

The 3 months correlation between Rational and Franklin is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Rational Defensive Growth and Franklin Adjustable Government in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Adjustable and Rational Defensive 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 Rational Defensive Growth are associated (or correlated) with Franklin Adjustable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Adjustable has no effect on the direction of Rational Defensive i.e., Rational Defensive and Franklin Adjustable go up and down completely randomly.

Pair Corralation between Rational Defensive and Franklin Adjustable

Assuming the 90 days horizon Rational Defensive Growth is expected to under-perform the Franklin Adjustable. In addition to that, Rational Defensive is 21.02 times more volatile than Franklin Adjustable Government. It trades about -0.17 of its total potential returns per unit of risk. Franklin Adjustable Government is currently generating about -0.13 per unit of volatility. If you would invest  755.00  in Franklin Adjustable Government on October 6, 2024 and sell it today you would lose (1.00) from holding Franklin Adjustable Government or give up 0.13% of portfolio value over 90 days.

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

Rational Defensive Growth  vs.  Franklin Adjustable Government

Rational Defensive Growth

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rational Defensive Growth are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Rational Defensive may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Franklin Adjustable

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Rational Defensive and Franklin Adjustable

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

The idea behind Rational Defensive Growth and Franklin Adjustable Government 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.