Correlation Between State Street and Franklin Gold

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

By analyzing existing cross correlation between State Street Target and Franklin Gold Precious, you can compare the effects of market volatilities on State Street and Franklin Gold 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 State Street with a short position of Franklin Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of State Street and Franklin Gold.

Diversification Opportunities for State Street and Franklin Gold

-0.17

Correlation Coefficient

State Street  Franklin Gold

Good diversification

The 3 months correlation between State and Franklin is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding State Street Target and Franklin Gold Precious in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Gold Precious and State Street 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 State Street Target are associated (or correlated) with Franklin Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Gold Precious has no effect on the direction of State Street i.e., State Street and Franklin Gold go up and down completely randomly.

Pair Corralation between State Street and Franklin Gold

Assuming the 90 days horizon State Street is expected to generate 1.1 times less return on investment than Franklin Gold. But when comparing it to its historical volatility, State Street Target is 4.64 times less risky than Franklin Gold. It trades about 0.09 of its potential returns per unit of risk. Franklin Gold Precious is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,648  in Franklin Gold Precious on September 16, 2024 and sell it today you would earn a total of  183.00  from holding Franklin Gold Precious or generate 11.1% return on investment over 90 days.

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

State Street Target  vs.  Franklin Gold Precious

State Street Target

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in State Street Target are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, State Street is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Franklin Gold Precious

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with State Street and Franklin Gold

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

The idea behind State Street Target and Franklin Gold Precious 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.