Correlation Between IShares Core and Franklin Liberty

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

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

Diversification Opportunities for IShares Core and Franklin Liberty

0.99

Correlation Coefficient

IShares Core  Franklin Liberty

No risk reduction

The 3 months correlation between IShares and Franklin is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core Total and Franklin Liberty Treasury in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Liberty Treasury and IShares Core 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 Core Total 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 Treasury has no effect on the direction of IShares Core i.e., IShares Core and Franklin Liberty go up and down completely randomly.

Pair Corralation between IShares Core and Franklin Liberty

Given the investment horizon of 90 days IShares Core is expected to generate 1.11 times less return on investment than Franklin Liberty. But when comparing it to its historical volatility, iShares Core Total is 1.02 times less risky than Franklin Liberty. It trades about 0.14 of its potential returns per unit of risk. Franklin Liberty Treasury is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,999  in Franklin Liberty Treasury on December 30, 2024 and sell it today you would earn a total of  52.00  from holding Franklin Liberty Treasury or generate 2.6% return on investment over 90 days.

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

iShares Core Total  vs.  Franklin Liberty Treasury

iShares Core Total

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core Total are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, IShares Core is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Franklin Liberty Treasury

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Liberty Treasury are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable technical and fundamental indicators, Franklin Liberty is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with IShares Core and Franklin Liberty

The main advantage of trading using opposite IShares Core and Franklin Liberty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Core 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 iShares Core Total and Franklin Liberty Treasury 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.