Correlation Between Solar Alliance and Franklin Large

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

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

Diversification Opportunities for Solar Alliance and Franklin Large

0.57

Correlation Coefficient

Solar Alliance  Franklin Large

Very weak diversification

The 3 months correlation between Solar and Franklin is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Solar Alliance Energy and Franklin Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Large Cap and Solar Alliance 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 Solar Alliance Energy are associated (or correlated) with Franklin Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Large Cap has no effect on the direction of Solar Alliance i.e., Solar Alliance and Franklin Large go up and down completely randomly.

Pair Corralation between Solar Alliance and Franklin Large

Assuming the 90 days trading horizon Solar Alliance Energy is not expected to generate positive returns. Moreover, Solar Alliance is 12.74 times more volatile than Franklin Large Cap. It trades away all of its potential returns to assume current level of volatility. Franklin Large Cap is currently generating about -0.05 per unit of risk. If you would invest  3.00  in Solar Alliance Energy on December 28, 2024 and sell it today you would lose (1.00) from holding Solar Alliance Energy or give up 33.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Solar Alliance Energy  vs.  Franklin Large Cap

Solar Alliance Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Solar Alliance Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable essential indicators, Solar Alliance is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Franklin Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Franklin Large Cap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Franklin Large is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Solar Alliance and Franklin Large

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

The idea behind Solar Alliance Energy and Franklin Large 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.