Correlation Between Tax-managed and Franklin Small-mid

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

By analyzing existing cross correlation between Tax Managed Large Cap and Franklin Small Mid Cap, you can compare the effects of market volatilities on Tax-managed and Franklin Small-mid 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 Tax-managed with a short position of Franklin Small-mid. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax-managed and Franklin Small-mid.

Diversification Opportunities for Tax-managed and Franklin Small-mid

0.96

Correlation Coefficient

Tax-managed  Franklin Small-mid

Almost no diversification

The 3 months correlation between Tax-managed and Franklin is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Tax Managed Large Cap and Franklin Small Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Small Mid and Tax-managed 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 Tax Managed Large Cap are associated (or correlated) with Franklin Small-mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Small Mid has no effect on the direction of Tax-managed i.e., Tax-managed and Franklin Small-mid go up and down completely randomly.

Pair Corralation between Tax-managed and Franklin Small-mid

Assuming the 90 days horizon Tax Managed Large Cap is expected to generate 0.74 times more return on investment than Franklin Small-mid. However, Tax Managed Large Cap is 1.34 times less risky than Franklin Small-mid. It trades about -0.13 of its potential returns per unit of risk. Franklin Small Mid Cap is currently generating about -0.12 per unit of risk. If you would invest  8,725  in Tax Managed Large Cap on October 11, 2024 and sell it today you would lose (214.00) from holding Tax Managed Large Cap or give up 2.45% of portfolio value over 90 days.

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

Tax Managed Large Cap  vs.  Franklin Small Mid Cap

Tax Managed Large

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tax Managed Large Cap are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Tax-managed is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Franklin Small Mid

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Small Mid Cap are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Franklin Small-mid is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Tax-managed and Franklin Small-mid

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

The idea behind Tax Managed Large Cap and Franklin Small Mid Cap 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.