Correlation Between Small Cap and Franklin High

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

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

Diversification Opportunities for Small Cap and Franklin High

0.56

Correlation Coefficient

Small Cap  Franklin High

Very weak diversification

The 3 months correlation between Small and Franklin is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and Franklin High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin High Yield and Small Cap 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 Small Cap Core are associated (or correlated) with Franklin High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin High Yield has no effect on the direction of Small Cap i.e., Small Cap and Franklin High go up and down completely randomly.

Pair Corralation between Small Cap and Franklin High

Assuming the 90 days horizon Small Cap Core is expected to generate 4.54 times more return on investment than Franklin High. However, Small Cap is 4.54 times more volatile than Franklin High Yield. It trades about 0.02 of its potential returns per unit of risk. Franklin High Yield is currently generating about 0.06 per unit of risk. If you would invest  1,113  in Small Cap Core on October 4, 2024 and sell it today you would earn a total of  85.00  from holding Small Cap Core or generate 7.64% return on investment over 90 days.

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

Small Cap Core  vs.  Franklin High Yield

Small Cap Core

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Cap Core has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Franklin High Yield

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Small Cap and Franklin High

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

The idea behind Small Cap Core and Franklin High Yield 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 CEOs Directory module to screen CEOs from public companies around the world.