Correlation Between Lumia and Franklin

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

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

Diversification Opportunities for Lumia and Franklin

-0.58

Correlation Coefficient

Lumia  Franklin

Excellent diversification

The 3 months correlation between Lumia and Franklin is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Lumia and Franklin Government Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Government and Lumia 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 Lumia are associated (or correlated) with Franklin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Government has no effect on the direction of Lumia i.e., Lumia and Franklin go up and down completely randomly.

Pair Corralation between Lumia and Franklin

Assuming the 90 days trading horizon Lumia is expected to under-perform the Franklin. In addition to that, Lumia is 25.79 times more volatile than Franklin Government Securities. It trades about -0.18 of its total potential returns per unit of risk. Franklin Government Securities is currently generating about 0.16 per unit of volatility. If you would invest  495.00  in Franklin Government Securities on December 23, 2024 and sell it today you would earn a total of  14.00  from holding Franklin Government Securities or generate 2.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	93.85%
Values	Daily Returns

Lumia  vs.  Franklin Government Securities

Lumia

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lumia has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for Lumia shareholders.

Franklin Government

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Government Securities are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Franklin is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lumia and Franklin

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

The idea behind Lumia and Franklin Government Securities 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.