Correlation Between Templeton Foreign and Franklin Balance

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

By analyzing existing cross correlation between Templeton Foreign Fund and Franklin Balance Sheet, you can compare the effects of market volatilities on Templeton Foreign and Franklin Balance 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 Templeton Foreign with a short position of Franklin Balance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Templeton Foreign and Franklin Balance.

Diversification Opportunities for Templeton Foreign and Franklin Balance

0.7

Correlation Coefficient

Templeton Foreign  Franklin Balance

Poor diversification

The 3 months correlation between Templeton and Franklin is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Templeton Foreign Fund and Franklin Balance Sheet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Balance Sheet and Templeton Foreign 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 Templeton Foreign Fund are associated (or correlated) with Franklin Balance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Balance Sheet has no effect on the direction of Templeton Foreign i.e., Templeton Foreign and Franklin Balance go up and down completely randomly.

Pair Corralation between Templeton Foreign and Franklin Balance

Assuming the 90 days horizon Templeton Foreign Fund is expected to under-perform the Franklin Balance. But the mutual fund apears to be less risky and, when comparing its historical volatility, Templeton Foreign Fund is 1.15 times less risky than Franklin Balance. The mutual fund trades about -0.23 of its potential returns per unit of risk. The Franklin Balance Sheet is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest  3,814  in Franklin Balance Sheet on October 14, 2024 and sell it today you would lose (397.00) from holding Franklin Balance Sheet or give up 10.41% of portfolio value over 90 days.

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

Templeton Foreign Fund  vs.  Franklin Balance Sheet

Templeton Foreign

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Templeton Foreign Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's technical and fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Franklin Balance Sheet

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin Balance Sheet has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Templeton Foreign and Franklin Balance

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

The idea behind Templeton Foreign Fund and Franklin Balance Sheet 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.