Correlation Between 1st Source and Franklin Financial

Can any of the company-specific risk be diversified away by investing in both 1st Source and Franklin Financial 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 1st Source and Franklin Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 1st Source and Franklin Financial Services, you can compare the effects of market volatilities on 1st Source and Franklin Financial 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 1st Source with a short position of Franklin Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of 1st Source and Franklin Financial.

Diversification Opportunities for 1st Source and Franklin Financial

0.86

Correlation Coefficient

1st Source  Franklin Financial

Very poor diversification

The 3 months correlation between 1st and Franklin is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding 1st Source and Franklin Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Financial and 1st Source 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 1st Source are associated (or correlated) with Franklin Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Financial has no effect on the direction of 1st Source i.e., 1st Source and Franklin Financial go up and down completely randomly.

Pair Corralation between 1st Source and Franklin Financial

Given the investment horizon of 90 days 1st Source is expected to generate 3.13 times less return on investment than Franklin Financial. In addition to that, 1st Source is 1.01 times more volatile than Franklin Financial Services. It trades about 0.06 of its total potential returns per unit of risk. Franklin Financial Services is currently generating about 0.18 per unit of volatility. If you would invest  2,974  in Franklin Financial Services on December 28, 2024 and sell it today you would earn a total of  573.00  from holding Franklin Financial Services or generate 19.27% return on investment over 90 days.

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

1st Source  vs.  Franklin Financial Services

1st Source

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in 1st Source are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, 1st Source is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Franklin Financial

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Financial Services are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Franklin Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with 1st Source and Franklin Financial

The main advantage of trading using opposite 1st Source and Franklin Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 1st Source position performs unexpectedly, Franklin Financial 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 Financial will offset losses from the drop in Franklin Financial's long position.

The idea behind 1st Source and Franklin Financial Services 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.