Correlation Between Sterling Capital and Franklin Small

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

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

Diversification Opportunities for Sterling Capital and Franklin Small

-0.55

Correlation Coefficient

Sterling Capital  Franklin Small

Excellent diversification

The 3 months correlation between Sterling and Franklin is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Sterling Capital Securitized and Franklin Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Small Cap and Sterling Capital 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 Sterling Capital Securitized are associated (or correlated) with Franklin Small. 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 Cap has no effect on the direction of Sterling Capital i.e., Sterling Capital and Franklin Small go up and down completely randomly.

Pair Corralation between Sterling Capital and Franklin Small

Assuming the 90 days horizon Sterling Capital Securitized is expected to under-perform the Franklin Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Sterling Capital Securitized is 4.83 times less risky than Franklin Small. The mutual fund trades about -0.17 of its potential returns per unit of risk. The Franklin Small Cap is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  6,335  in Franklin Small Cap on September 18, 2024 and sell it today you would earn a total of  449.00  from holding Franklin Small Cap or generate 7.09% return on investment over 90 days.

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

Sterling Capital Securitized  vs.  Franklin Small Cap

Sterling Capital Sec

Risk-Adjusted Performance

0 of 100

Very Weak

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

Franklin Small Cap

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Small Cap are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Franklin Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Sterling Capital and Franklin Small

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

The idea behind Sterling Capital Securitized and Franklin Small 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.