Correlation Between Franklin Mutual and International Equity

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

By analyzing existing cross correlation between Franklin Mutual Shares and International Equity Series, you can compare the effects of market volatilities on Franklin Mutual and International Equity 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 International Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Mutual and International Equity.

Diversification Opportunities for Franklin Mutual and International Equity

0.84

Correlation Coefficient

Franklin Mutual  International Equity

Very poor diversification

The 3 months correlation between Franklin and International is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Mutual Shares and International Equity Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Equity 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 Shares are associated (or correlated) with International Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Equity has no effect on the direction of Franklin Mutual i.e., Franklin Mutual and International Equity go up and down completely randomly.

Pair Corralation between Franklin Mutual and International Equity

Assuming the 90 days horizon Franklin Mutual Shares is expected to under-perform the International Equity. But the mutual fund apears to be less risky and, when comparing its historical volatility, Franklin Mutual Shares is 1.64 times less risky than International Equity. The mutual fund trades about -0.14 of its potential returns per unit of risk. The International Equity Series is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  1,191  in International Equity Series on December 2, 2024 and sell it today you would lose (78.00) from holding International Equity Series or give up 6.55% of portfolio value over 90 days.

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

Franklin Mutual Shares  vs.  International Equity Series

Franklin Mutual Shares

Risk-Adjusted Performance

Very Weak

Over the last 90 days Franklin Mutual Shares 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.

International Equity

Risk-Adjusted Performance

Very Weak

Over the last 90 days International Equity Series has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, International Equity 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 International Equity

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

The idea behind Franklin Mutual Shares and International Equity Series 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.