Correlation Between Small Company and Franklin Natural

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

By analyzing existing cross correlation between Small Pany Growth and Franklin Natural Resources, you can compare the effects of market volatilities on Small Company and Franklin Natural 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 Small Company with a short position of Franklin Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Company and Franklin Natural.

Diversification Opportunities for Small Company and Franklin Natural

0.15

Correlation Coefficient

Small Company  Franklin Natural

Average diversification

The 3 months correlation between Small and Franklin is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Small Pany Growth and Franklin Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Natural Res and Small Company 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 Small Pany Growth are associated (or correlated) with Franklin Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Natural Res has no effect on the direction of Small Company i.e., Small Company and Franklin Natural go up and down completely randomly.

Pair Corralation between Small Company and Franklin Natural

Assuming the 90 days horizon Small Pany Growth is expected to under-perform the Franklin Natural. In addition to that, Small Company is 1.96 times more volatile than Franklin Natural Resources. It trades about -0.1 of its total potential returns per unit of risk. Franklin Natural Resources is currently generating about -0.05 per unit of volatility. If you would invest  3,041  in Franklin Natural Resources on December 4, 2024 and sell it today you would lose (96.00) from holding Franklin Natural Resources or give up 3.16% of portfolio value over 90 days.

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

Small Pany Growth  vs.  Franklin Natural Resources

Small Pany Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Pany Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's technical and fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Franklin Natural Res

Risk-Adjusted Performance

Very Weak

Over the last 90 days Franklin Natural Resources has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Franklin Natural is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Small Company and Franklin Natural

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

The idea behind Small Pany Growth and Franklin Natural Resources 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.