Correlation Between IShares Latin and Franklin FTSE

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

By analyzing existing cross correlation between iShares Latin America and Franklin FTSE Mexico, you can compare the effects of market volatilities on IShares Latin and Franklin FTSE 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 IShares Latin with a short position of Franklin FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Latin and Franklin FTSE.

Diversification Opportunities for IShares Latin and Franklin FTSE

0.89

Correlation Coefficient

IShares Latin  Franklin FTSE

Very poor diversification

The 3 months correlation between IShares and Franklin is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding iShares Latin America and Franklin FTSE Mexico in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin FTSE Mexico and IShares Latin 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 iShares Latin America are associated (or correlated) with Franklin FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin FTSE Mexico has no effect on the direction of IShares Latin i.e., IShares Latin and Franklin FTSE go up and down completely randomly.

Pair Corralation between IShares Latin and Franklin FTSE

Considering the 90-day investment horizon iShares Latin America is expected to under-perform the Franklin FTSE. In addition to that, IShares Latin is 1.1 times more volatile than Franklin FTSE Mexico. It trades about -0.23 of its total potential returns per unit of risk. Franklin FTSE Mexico is currently generating about -0.08 per unit of volatility. If you would invest  2,475  in Franklin FTSE Mexico on September 22, 2024 and sell it today you would lose (67.00) from holding Franklin FTSE Mexico or give up 2.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

iShares Latin America  vs.  Franklin FTSE Mexico

iShares Latin America

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Latin America has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Etf's essential indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the Exchange Traded Fund stockholders.

Franklin FTSE Mexico

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin FTSE Mexico has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Pair Trading with IShares Latin and Franklin FTSE

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

The idea behind iShares Latin America and Franklin FTSE Mexico 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.