Correlation Between Franklin Mutual and Franklin

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

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

Diversification Opportunities for Franklin Mutual and Franklin

0.83

Correlation Coefficient

Franklin Mutual  Franklin

Very poor diversification

The 3 months correlation between Franklin and Franklin is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Franklin 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 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 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 Franklin Mutual i.e., Franklin Mutual and Franklin go up and down completely randomly.

Pair Corralation between Franklin Mutual and Franklin

Assuming the 90 days horizon Franklin Mutual Quest is expected to generate 1.86 times more return on investment than Franklin. However, Franklin Mutual is 1.86 times more volatile than Franklin Government Securities. It trades about 0.18 of its potential returns per unit of risk. Franklin Government Securities is currently generating about 0.16 per unit of risk. If you would invest  1,391  in Franklin Mutual Quest on December 23, 2024 and sell it today you would earn a total of  84.00  from holding Franklin Mutual Quest or generate 6.04% return on investment over 90 days.

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

Franklin Mutual Quest  vs.  Franklin Government Securities

Franklin Mutual Quest

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Mutual Quest are ranked lower than 14 (%) 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.

Franklin Government

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Government Securities are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. 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 Franklin Mutual and Franklin

The main advantage of trading using opposite Franklin Mutual and Franklin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin Mutual 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 Franklin 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.