Correlation Between Franklin International and Invesco SP

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

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

Diversification Opportunities for Franklin International and Invesco SP

0.55

Correlation Coefficient

Franklin International  Invesco SP

Very weak diversification

The 3 months correlation between Franklin and Invesco is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Franklin International Low and Invesco SP MidCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP MidCap and Franklin International 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 Franklin International Low are associated (or correlated) with Invesco SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco SP MidCap has no effect on the direction of Franklin International i.e., Franklin International and Invesco SP go up and down completely randomly.

Pair Corralation between Franklin International and Invesco SP

Given the investment horizon of 90 days Franklin International is expected to generate 6.24 times less return on investment than Invesco SP. But when comparing it to its historical volatility, Franklin International Low is 1.83 times less risky than Invesco SP. It trades about 0.08 of its potential returns per unit of risk. Invesco SP MidCap is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  6,076  in Invesco SP MidCap on September 5, 2024 and sell it today you would earn a total of  381.00  from holding Invesco SP MidCap or generate 6.27% return on investment over 90 days.

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

Franklin International Low  vs.  Invesco SP MidCap

Franklin International

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin International Low are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical indicators, Franklin International is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Invesco SP MidCap

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP MidCap are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal essential indicators, Invesco SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Franklin International and Invesco SP

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

The idea behind Franklin International Low and Invesco SP MidCap 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..