Correlation Between Foreign Smaller and Franklin Mutual

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

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

Diversification Opportunities for Foreign Smaller and Franklin Mutual

0.48

Correlation Coefficient

Foreign Smaller  Franklin Mutual

Very weak diversification

The 3 months correlation between Foreign and Franklin is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Foreign Smaller Panies and Franklin Mutual Shares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Mutual Shares and Foreign Smaller 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 Foreign Smaller Panies are associated (or correlated) with Franklin Mutual. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Mutual Shares has no effect on the direction of Foreign Smaller i.e., Foreign Smaller and Franklin Mutual go up and down completely randomly.

Pair Corralation between Foreign Smaller and Franklin Mutual

Assuming the 90 days horizon Foreign Smaller Panies is expected to under-perform the Franklin Mutual. In addition to that, Foreign Smaller is 1.26 times more volatile than Franklin Mutual Shares. It trades about -0.08 of its total potential returns per unit of risk. Franklin Mutual Shares is currently generating about -0.01 per unit of volatility. If you would invest  2,497  in Franklin Mutual Shares on September 30, 2024 and sell it today you would lose (45.00) from holding Franklin Mutual Shares or give up 1.8% of portfolio value over 90 days.

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

Foreign Smaller Panies  vs.  Franklin Mutual Shares

Foreign Smaller Panies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Foreign Smaller Panies 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 fundamental 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 Mutual Shares

Risk-Adjusted Performance

0 of 100

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.

Pair Trading with Foreign Smaller and Franklin Mutual

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

The idea behind Foreign Smaller Panies and Franklin Mutual Shares 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.