Correlation Between Clearbridge Small and Franklin Conservative

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

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

Diversification Opportunities for Clearbridge Small and Franklin Conservative

0.77

Correlation Coefficient

Clearbridge Small  Franklin Conservative

Poor diversification

The 3 months correlation between Clearbridge and Franklin is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Clearbridge Small Cap and Franklin Servative Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Conservative and Clearbridge Small 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 Clearbridge Small Cap are associated (or correlated) with Franklin Conservative. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Conservative has no effect on the direction of Clearbridge Small i.e., Clearbridge Small and Franklin Conservative go up and down completely randomly.

Pair Corralation between Clearbridge Small and Franklin Conservative

Assuming the 90 days horizon Clearbridge Small Cap is expected to under-perform the Franklin Conservative. In addition to that, Clearbridge Small is 4.6 times more volatile than Franklin Servative Allocation. It trades about -0.3 of its total potential returns per unit of risk. Franklin Servative Allocation is currently generating about -0.31 per unit of volatility. If you would invest  1,431  in Franklin Servative Allocation on October 8, 2024 and sell it today you would lose (40.00) from holding Franklin Servative Allocation or give up 2.8% of portfolio value over 90 days.

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

Clearbridge Small Cap  vs.  Franklin Servative Allocation

Clearbridge Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

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

Franklin Conservative

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Clearbridge Small and Franklin Conservative

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

The idea behind Clearbridge Small Cap and Franklin Servative 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 Global Correlations module to find global opportunities by holding instruments from different markets.