Correlation Between ALPS REIT and Franklin Liberty

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

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

Diversification Opportunities for ALPS REIT and Franklin Liberty

0.41

Correlation Coefficient

ALPS REIT  Franklin Liberty

Very weak diversification

The 3 months correlation between ALPS and Franklin is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding ALPS REIT Dividend and Franklin Liberty High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Liberty High and ALPS REIT 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 ALPS REIT Dividend 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 High has no effect on the direction of ALPS REIT i.e., ALPS REIT and Franklin Liberty go up and down completely randomly.

Pair Corralation between ALPS REIT and Franklin Liberty

Given the investment horizon of 90 days ALPS REIT Dividend is expected to generate 4.75 times more return on investment than Franklin Liberty. However, ALPS REIT is 4.75 times more volatile than Franklin Liberty High. It trades about 0.11 of its potential returns per unit of risk. Franklin Liberty High is currently generating about 0.17 per unit of risk. If you would invest  3,535  in ALPS REIT Dividend on September 15, 2024 and sell it today you would earn a total of  533.00  from holding ALPS REIT Dividend or generate 15.08% return on investment over 90 days.

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

ALPS REIT Dividend  vs.  Franklin Liberty High

ALPS REIT Dividend

Risk-Adjusted Performance

0 of 100

Very Weak

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

Franklin Liberty High

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin Liberty High has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, Franklin Liberty is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ALPS REIT and Franklin Liberty

The main advantage of trading using opposite ALPS REIT and Franklin Liberty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ALPS REIT 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 ALPS REIT Dividend and Franklin Liberty High 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.