Correlation Between Franklin Mutual and Western Asset

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

By analyzing existing cross correlation between Franklin Mutual Beacon and Western Asset Short, you can compare the effects of market volatilities on Franklin Mutual and Western Asset 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 Franklin Mutual with a short position of Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Mutual and Western Asset.

Diversification Opportunities for Franklin Mutual and Western Asset

0.83

Correlation Coefficient

Franklin Mutual  Western Asset

Very poor diversification

The 3 months correlation between Franklin and Western is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Mutual Beacon and Western Asset Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Short and Franklin Mutual 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 Franklin Mutual Beacon are associated (or correlated) with Western Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Asset Short has no effect on the direction of Franklin Mutual i.e., Franklin Mutual and Western Asset go up and down completely randomly.

Pair Corralation between Franklin Mutual and Western Asset

Assuming the 90 days horizon Franklin Mutual Beacon is expected to generate 6.99 times more return on investment than Western Asset. However, Franklin Mutual is 6.99 times more volatile than Western Asset Short. It trades about 0.14 of its potential returns per unit of risk. Western Asset Short is currently generating about 0.13 per unit of risk. If you would invest  1,566  in Franklin Mutual Beacon on December 23, 2024 and sell it today you would earn a total of  95.00  from holding Franklin Mutual Beacon or generate 6.07% return on investment over 90 days.

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

Franklin Mutual Beacon  vs.  Western Asset Short

Franklin Mutual Beacon

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Mutual Beacon are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Franklin Mutual is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Western Asset Short

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset Short are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Western Asset is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Franklin Mutual and Western Asset

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

The idea behind Franklin Mutual Beacon and Western Asset Short 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.