Correlation Between Visa and Franklin Liberty

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

By analyzing existing cross correlation between Visa Class A and Franklin Liberty Senior, you can compare the effects of market volatilities on Visa and Franklin Liberty 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 Visa with a short position of Franklin Liberty. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Franklin Liberty.

Diversification Opportunities for Visa and Franklin Liberty

0.85

Correlation Coefficient

Visa  Franklin Liberty

Very poor diversification

The 3 months correlation between Visa and Franklin is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Franklin Liberty Senior in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Liberty Senior and Visa 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 Visa Class A are associated (or correlated) with Franklin Liberty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Liberty Senior has no effect on the direction of Visa i.e., Visa and Franklin Liberty go up and down completely randomly.

Pair Corralation between Visa and Franklin Liberty

Taking into account the 90-day investment horizon Visa Class A is expected to generate 10.08 times more return on investment than Franklin Liberty. However, Visa is 10.08 times more volatile than Franklin Liberty Senior. It trades about 0.07 of its potential returns per unit of risk. Franklin Liberty Senior is currently generating about 0.46 per unit of risk. If you would invest  31,032  in Visa Class A on September 12, 2024 and sell it today you would earn a total of  347.00  from holding Visa Class A or generate 1.12% return on investment over 90 days.

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

Visa Class A  vs.  Franklin Liberty Senior

Visa Class A

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Franklin Liberty Senior

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Liberty Senior are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, Franklin Liberty is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Visa and Franklin Liberty

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

The idea behind Visa Class A and Franklin Liberty Senior 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.