Correlation Between IShares MBS and Franklin Liberty

Can any of the company-specific risk be diversified away by investing in both IShares MBS 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 MBS 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 MBS ETF and Franklin Liberty Treasury, you can compare the effects of market volatilities on IShares MBS 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 MBS with a short position of Franklin Liberty. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MBS and Franklin Liberty.

Diversification Opportunities for IShares MBS and Franklin Liberty

0.99

Correlation Coefficient

IShares MBS  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 MBS ETF 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 MBS 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 MBS ETF 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 MBS i.e., IShares MBS and Franklin Liberty go up and down completely randomly.

Pair Corralation between IShares MBS and Franklin Liberty

Considering the 90-day investment horizon iShares MBS ETF is expected to generate 1.26 times more return on investment than Franklin Liberty. However, IShares MBS is 1.26 times more volatile than Franklin Liberty Treasury. It trades about 0.03 of its potential returns per unit of risk. Franklin Liberty Treasury is currently generating about 0.04 per unit of risk. If you would invest  9,298  in iShares MBS ETF on November 28, 2024 and sell it today you would earn a total of  56.00  from holding iShares MBS ETF or generate 0.6% return on investment over 90 days.

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

iShares MBS ETF  vs.  Franklin Liberty Treasury

iShares MBS ETF

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MBS ETF are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, IShares MBS is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Franklin Liberty Treasury

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Liberty Treasury are ranked lower than 2 (%) 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 MBS and Franklin Liberty

The main advantage of trading using opposite IShares MBS and Franklin Liberty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MBS 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 MBS ETF 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.