Correlation Between Davis Government and Franklin Moderate

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

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

Diversification Opportunities for Davis Government and Franklin Moderate

0.46

Correlation Coefficient

Davis Government  Franklin Moderate

Very weak diversification

The 3 months correlation between Davis and Franklin is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Davis Government Bond and Franklin Moderate Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Moderate and Davis Government 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 Davis Government Bond are associated (or correlated) with Franklin Moderate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Moderate has no effect on the direction of Davis Government i.e., Davis Government and Franklin Moderate go up and down completely randomly.

Pair Corralation between Davis Government and Franklin Moderate

Assuming the 90 days horizon Davis Government Bond is expected to generate 0.2 times more return on investment than Franklin Moderate. However, Davis Government Bond is 4.92 times less risky than Franklin Moderate. It trades about -0.16 of its potential returns per unit of risk. Franklin Moderate Allocation is currently generating about -0.25 per unit of risk. If you would invest  511.00  in Davis Government Bond on October 8, 2024 and sell it today you would lose (2.00) from holding Davis Government Bond or give up 0.39% of portfolio value over 90 days.

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

Davis Government Bond  vs.  Franklin Moderate Allocation

Davis Government Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Franklin Moderate

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Davis Government and Franklin Moderate

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

The idea behind Davis Government Bond and Franklin Moderate Allocation 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.