Correlation Between Schwab Small-cap and Franklin Lifesmart

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

By analyzing existing cross correlation between Schwab Small Cap Index and Franklin Lifesmart 2050, you can compare the effects of market volatilities on Schwab Small-cap and Franklin Lifesmart 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 Schwab Small-cap with a short position of Franklin Lifesmart. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Small-cap and Franklin Lifesmart.

Diversification Opportunities for Schwab Small-cap and Franklin Lifesmart

0.81

Correlation Coefficient

Schwab Small-cap  Franklin Lifesmart

Very poor diversification

The 3 months correlation between Schwab and Franklin is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Small Cap Index and Franklin Lifesmart 2050 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Lifesmart 2050 and Schwab Small-cap 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 Schwab Small Cap Index are associated (or correlated) with Franklin Lifesmart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Lifesmart 2050 has no effect on the direction of Schwab Small-cap i.e., Schwab Small-cap and Franklin Lifesmart go up and down completely randomly.

Pair Corralation between Schwab Small-cap and Franklin Lifesmart

Assuming the 90 days horizon Schwab Small-cap is expected to generate 1.08 times less return on investment than Franklin Lifesmart. In addition to that, Schwab Small-cap is 1.42 times more volatile than Franklin Lifesmart 2050. It trades about 0.09 of its total potential returns per unit of risk. Franklin Lifesmart 2050 is currently generating about 0.14 per unit of volatility. If you would invest  1,573  in Franklin Lifesmart 2050 on October 26, 2024 and sell it today you would earn a total of  30.00  from holding Franklin Lifesmart 2050 or generate 1.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	94.74%
Values	Daily Returns

Schwab Small Cap Index  vs.  Franklin Lifesmart 2050

Schwab Small Cap

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Small Cap Index are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Schwab Small-cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Franklin Lifesmart 2050

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Lifesmart 2050 are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Franklin Lifesmart is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Schwab Small-cap and Franklin Lifesmart

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

The idea behind Schwab Small Cap Index and Franklin Lifesmart 2050 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.