Correlation Between Morningstar Defensive and Franklin Gold

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

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

Diversification Opportunities for Morningstar Defensive and Franklin Gold

0.29

Correlation Coefficient

Morningstar Defensive  Franklin Gold

Modest diversification

The 3 months correlation between Morningstar and Franklin is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar Defensive Bond and Franklin Gold Precious in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Gold Precious and Morningstar Defensive 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 Morningstar Defensive Bond are associated (or correlated) with Franklin Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Gold Precious has no effect on the direction of Morningstar Defensive i.e., Morningstar Defensive and Franklin Gold go up and down completely randomly.

Pair Corralation between Morningstar Defensive and Franklin Gold

Assuming the 90 days horizon Morningstar Defensive Bond is expected to generate 0.09 times more return on investment than Franklin Gold. However, Morningstar Defensive Bond is 10.98 times less risky than Franklin Gold. It trades about 0.14 of its potential returns per unit of risk. Franklin Gold Precious is currently generating about 0.01 per unit of risk. If you would invest  872.00  in Morningstar Defensive Bond on September 25, 2024 and sell it today you would earn a total of  98.00  from holding Morningstar Defensive Bond or generate 11.24% return on investment over 90 days.

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

Morningstar Defensive Bond  vs.  Franklin Gold Precious

Morningstar Defensive

Risk-Adjusted Performance

0 of 100

Very Weak

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

Franklin Gold Precious

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin Gold Precious 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 basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Morningstar Defensive and Franklin Gold

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

The idea behind Morningstar Defensive Bond and Franklin Gold Precious 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.