Correlation Between Snow Capital and Franklin Growth

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

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

Diversification Opportunities for Snow Capital and Franklin Growth

0.81

Correlation Coefficient

Snow Capital  Franklin Growth

Very poor diversification

The 3 months correlation between Snow and Franklin is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Snow Capital Small and Franklin Growth Opportunities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Growth Oppo and Snow 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 Snow Capital Small are associated (or correlated) with Franklin Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Growth Oppo has no effect on the direction of Snow Capital i.e., Snow Capital and Franklin Growth go up and down completely randomly.

Pair Corralation between Snow Capital and Franklin Growth

Assuming the 90 days horizon Snow Capital Small is expected to under-perform the Franklin Growth. But the mutual fund apears to be less risky and, when comparing its historical volatility, Snow Capital Small is 1.74 times less risky than Franklin Growth. The mutual fund trades about -0.56 of its potential returns per unit of risk. The Franklin Growth Opportunities is currently generating about -0.24 of returns per unit of risk over similar time horizon. If you would invest  6,309  in Franklin Growth Opportunities on September 24, 2024 and sell it today you would lose (595.00) from holding Franklin Growth Opportunities or give up 9.43% of portfolio value over 90 days.

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

Snow Capital Small  vs.  Franklin Growth Opportunities

Snow Capital Small

Risk-Adjusted Performance

0 of 100

Very Weak

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

Franklin Growth Oppo

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Snow Capital and Franklin Growth

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

The idea behind Snow Capital Small and Franklin Growth Opportunities 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.