Correlation Between International Equity and Franklin

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

By analyzing existing cross correlation between International Equity Series and Franklin K2 Alternative, you can compare the effects of market volatilities on International Equity 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 International Equity with a short position of Franklin. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Equity and Franklin.

Diversification Opportunities for International Equity and Franklin

-0.57

Correlation Coefficient

International Equity  Franklin

Excellent diversification

The 3 months correlation between International and Franklin is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Series and Franklin K2 Alternative in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin K2 Alternative and International Equity 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 International Equity Series 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 K2 Alternative has no effect on the direction of International Equity i.e., International Equity and Franklin go up and down completely randomly.

Pair Corralation between International Equity and Franklin

Assuming the 90 days horizon International Equity is expected to generate 1.35 times less return on investment than Franklin. In addition to that, International Equity is 5.52 times more volatile than Franklin K2 Alternative. It trades about 0.02 of its total potential returns per unit of risk. Franklin K2 Alternative is currently generating about 0.14 per unit of volatility. If you would invest  1,065  in Franklin K2 Alternative on September 24, 2024 and sell it today you would earn a total of  147.00  from holding Franklin K2 Alternative or generate 13.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

International Equity Series  vs.  Franklin K2 Alternative

International Equity

Risk-Adjusted Performance

0 of 100

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 weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Franklin K2 Alternative

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin K2 Alternative are ranked lower than 14 (%) 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 International Equity and Franklin

The main advantage of trading using opposite International Equity and Franklin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Equity 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 International Equity Series and Franklin K2 Alternative 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..