Correlation Between Stepstone and Franklin Credit

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

By analyzing existing cross correlation between Stepstone Group and Franklin Credit Management, you can compare the effects of market volatilities on Stepstone and Franklin Credit 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 Stepstone with a short position of Franklin Credit. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepstone and Franklin Credit.

Diversification Opportunities for Stepstone and Franklin Credit

0.27

Correlation Coefficient

Stepstone  Franklin Credit

Modest diversification

The 3 months correlation between Stepstone and Franklin is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Stepstone Group and Franklin Credit Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Credit Mana and Stepstone 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 Stepstone Group are associated (or correlated) with Franklin Credit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Credit Mana has no effect on the direction of Stepstone i.e., Stepstone and Franklin Credit go up and down completely randomly.

Pair Corralation between Stepstone and Franklin Credit

Given the investment horizon of 90 days Stepstone Group is expected to generate 0.53 times more return on investment than Franklin Credit. However, Stepstone Group is 1.9 times less risky than Franklin Credit. It trades about 0.12 of its potential returns per unit of risk. Franklin Credit Management is currently generating about 0.06 per unit of risk. If you would invest  5,444  in Stepstone Group on September 17, 2024 and sell it today you would earn a total of  919.50  from holding Stepstone Group or generate 16.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Stepstone Group  vs.  Franklin Credit Management

Stepstone Group

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Stepstone Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal technical and fundamental indicators, Stepstone reported solid returns over the last few months and may actually be approaching a breakup point.

Franklin Credit Mana

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Credit Management are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Franklin Credit displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Stepstone and Franklin Credit

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

The idea behind Stepstone Group and Franklin Credit Management 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.