Correlation Between Visa and Franklin

Can any of the company-specific risk be diversified away by investing in both Visa 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 Visa and Franklin 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 Government Securities, you can compare the effects of market volatilities on Visa 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 Visa with a short position of Franklin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Franklin.

Diversification Opportunities for Visa and Franklin

-0.17

Correlation Coefficient

Visa  Franklin

Good diversification

The 3 months correlation between Visa and Franklin is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Franklin Government Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Government 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. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Government has no effect on the direction of Visa i.e., Visa and Franklin go up and down completely randomly.

Pair Corralation between Visa and Franklin

Taking into account the 90-day investment horizon Visa Class A is expected to generate 2.88 times more return on investment than Franklin. However, Visa is 2.88 times more volatile than Franklin Government Securities. It trades about 0.06 of its potential returns per unit of risk. Franklin Government Securities is currently generating about -0.14 per unit of risk. If you would invest  30,728  in Visa Class A on October 9, 2024 and sell it today you would earn a total of  576.00  from holding Visa Class A or generate 1.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.5%
Values	Daily Returns

Visa Class A  vs.  Franklin Government Securities

Visa Class A

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa showed solid returns over the last few months and may actually be approaching a breakup point.

Franklin Government

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin Government Securities has generated negative risk-adjusted returns adding no value to fund investors. 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 Visa and Franklin

The main advantage of trading using opposite Visa and Franklin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa 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 Visa Class A and Franklin Government Securities 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.