Correlation Between Northern Lights and Franklin International

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

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

Diversification Opportunities for Northern Lights and Franklin International

0.37

Correlation Coefficient

Northern Lights  Franklin International

Weak diversification

The 3 months correlation between Northern and Franklin is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and Franklin International Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin International and Northern Lights 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 Northern Lights are associated (or correlated) with Franklin International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin International has no effect on the direction of Northern Lights i.e., Northern Lights and Franklin International go up and down completely randomly.

Pair Corralation between Northern Lights and Franklin International

Given the investment horizon of 90 days Northern Lights is expected to under-perform the Franklin International. But the etf apears to be less risky and, when comparing its historical volatility, Northern Lights is 1.11 times less risky than Franklin International. The etf trades about -0.48 of its potential returns per unit of risk. The Franklin International Core is currently generating about -0.21 of returns per unit of risk over similar time horizon. If you would invest  3,133  in Franklin International Core on October 9, 2024 and sell it today you would lose (99.00) from holding Franklin International Core or give up 3.16% of portfolio value over 90 days.

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

Northern Lights  vs.  Franklin International Core

Northern Lights

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northern Lights has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Northern Lights is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Franklin International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin International Core has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Franklin International is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Northern Lights and Franklin International

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

The idea behind Northern Lights and Franklin International Core 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.