Correlation Between Prospect Capital and Franklin Resources

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

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

Diversification Opportunities for Prospect Capital and Franklin Resources

-0.05

Correlation Coefficient

Prospect Capital  Franklin Resources

Good diversification

The 3 months correlation between Prospect and Franklin is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Prospect Capital and Franklin Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Resources and Prospect Capital 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 Prospect Capital are associated (or correlated) with Franklin Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Resources has no effect on the direction of Prospect Capital i.e., Prospect Capital and Franklin Resources go up and down completely randomly.

Pair Corralation between Prospect Capital and Franklin Resources

Assuming the 90 days trading horizon Prospect Capital is expected to generate 1.0 times more return on investment than Franklin Resources. However, Prospect Capital is 1.0 times less risky than Franklin Resources. It trades about 0.04 of its potential returns per unit of risk. Franklin Resources is currently generating about -0.02 per unit of risk. If you would invest  1,512  in Prospect Capital on October 5, 2024 and sell it today you would earn a total of  282.00  from holding Prospect Capital or generate 18.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.63%
Values	Daily Returns

Prospect Capital  vs.  Franklin Resources

Prospect Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prospect Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Preferred Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Franklin Resources

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Resources are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Franklin Resources is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Prospect Capital and Franklin Resources

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

The idea behind Prospect Capital and Franklin 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.