Correlation Between IShares ESG and Franklin Liberty

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

By analyzing existing cross correlation between iShares ESG USD and Franklin Liberty Investment, you can compare the effects of market volatilities on IShares ESG and Franklin Liberty 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 IShares ESG with a short position of Franklin Liberty. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares ESG and Franklin Liberty.

Diversification Opportunities for IShares ESG and Franklin Liberty

1.0

Correlation Coefficient

IShares ESG  Franklin Liberty

No risk reduction

The 3 months correlation between IShares and Franklin is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG USD and Franklin Liberty Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Liberty Inv and IShares ESG 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 iShares ESG USD are associated (or correlated) with Franklin Liberty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Liberty Inv has no effect on the direction of IShares ESG i.e., IShares ESG and Franklin Liberty go up and down completely randomly.

Pair Corralation between IShares ESG and Franklin Liberty

Given the investment horizon of 90 days IShares ESG is expected to generate 1.01 times less return on investment than Franklin Liberty. But when comparing it to its historical volatility, iShares ESG USD is 1.05 times less risky than Franklin Liberty. It trades about 0.1 of its potential returns per unit of risk. Franklin Liberty Investment is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,097  in Franklin Liberty Investment on December 30, 2024 and sell it today you would earn a total of  41.00  from holding Franklin Liberty Investment or generate 1.96% return on investment over 90 days.

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

iShares ESG USD  vs.  Franklin Liberty Investment

iShares ESG USD

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG USD are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, IShares ESG is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Franklin Liberty Inv

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Liberty Investment are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Franklin Liberty is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares ESG and Franklin Liberty

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

The idea behind iShares ESG USD and Franklin Liberty Investment 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.