Correlation Between Overlay Shares and Franklin Liberty

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

By analyzing existing cross correlation between Overlay Shares Foreign and Franklin Liberty Systematic, you can compare the effects of market volatilities on Overlay Shares 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 Overlay Shares with a short position of Franklin Liberty. Check out your portfolio center. Please also check ongoing floating volatility patterns of Overlay Shares and Franklin Liberty.

Diversification Opportunities for Overlay Shares and Franklin Liberty

-0.11

Correlation Coefficient

Overlay Shares  Franklin Liberty

Good diversification

The 3 months correlation between Overlay and Franklin is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Overlay Shares Foreign and Franklin Liberty Systematic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Liberty Sys and Overlay Shares 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 Overlay Shares Foreign 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 Sys has no effect on the direction of Overlay Shares i.e., Overlay Shares and Franklin Liberty go up and down completely randomly.

Pair Corralation between Overlay Shares and Franklin Liberty

Considering the 90-day investment horizon Overlay Shares Foreign is expected to generate 1.02 times more return on investment than Franklin Liberty. However, Overlay Shares is 1.02 times more volatile than Franklin Liberty Systematic. It trades about 0.05 of its potential returns per unit of risk. Franklin Liberty Systematic is currently generating about 0.04 per unit of risk. If you would invest  2,000  in Overlay Shares Foreign on October 27, 2024 and sell it today you would earn a total of  457.00  from holding Overlay Shares Foreign or generate 22.85% return on investment over 90 days.

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

Overlay Shares Foreign  vs.  Franklin Liberty Systematic

Overlay Shares Foreign

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Overlay Shares Foreign has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Overlay Shares is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Franklin Liberty Sys

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Liberty Systematic are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Franklin Liberty is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Overlay Shares and Franklin Liberty

The main advantage of trading using opposite Overlay Shares and Franklin Liberty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Overlay Shares 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 Overlay Shares Foreign and Franklin Liberty Systematic 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.