Correlation Between Mutual Quest and Franklin

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

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

Diversification Opportunities for Mutual Quest and Franklin

0.77

Correlation Coefficient

Mutual Quest  Franklin

Poor diversification

The 3 months correlation between Mutual and Franklin is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Mutual Quest and Franklin Government Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Government and Mutual Quest 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 Mutual Quest are associated (or correlated) with Franklin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Government has no effect on the direction of Mutual Quest i.e., Mutual Quest and Franklin go up and down completely randomly.

Pair Corralation between Mutual Quest and Franklin

Assuming the 90 days horizon Mutual Quest is expected to under-perform the Franklin. In addition to that, Mutual Quest is 2.34 times more volatile than Franklin Government Securities. It trades about -0.22 of its total potential returns per unit of risk. Franklin Government Securities is currently generating about -0.14 per unit of volatility. If you would invest  506.00  in Franklin Government Securities on October 9, 2024 and sell it today you would lose (8.00) from holding Franklin Government Securities or give up 1.58% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.5%
Values	Daily Returns

Mutual Quest  vs.  Franklin Government Securities

Mutual Quest

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mutual Quest has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Mutual Quest is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Franklin Government

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin Government Securities has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Franklin is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Mutual Quest and Franklin

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

The idea behind Mutual Quest and Franklin Government Securities 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.