Correlation Between International Equity and Franklin

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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

0.45
  Correlation Coefficient

Very weak diversification

The 3 months correlation between International and Franklin is 0.45. 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 Series is expected to under-perform the Franklin. In addition to that, International Equity is 1.07 times more volatile than Franklin K2 Alternative. It trades about -0.28 of its total potential returns per unit of risk. Franklin K2 Alternative is currently generating about -0.21 per unit of volatility. If you would invest  1,214  in Franklin K2 Alternative on October 13, 2024 and sell it today you would lose (119.00) from holding Franklin K2 Alternative or give up 9.8% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

International Equity Series  vs.  Franklin K2 Alternative

 Performance 
       Timeline  
International Equity 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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 February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.
Franklin K2 Alternative 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Franklin K2 Alternative 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 and Franklin Volatility Contrast

   Predicted Return Density   
       Returns  

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.
Check out your portfolio center.
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..

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