Correlation Between Vanguard Energy and Franklin Natural

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Can any of the company-specific risk be diversified away by investing in both Vanguard Energy and Franklin Natural 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 Vanguard Energy and Franklin Natural into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Energy Index and Franklin Natural Resources, you can compare the effects of market volatilities on Vanguard Energy and Franklin Natural 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 Vanguard Energy with a short position of Franklin Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Energy and Franklin Natural.

Diversification Opportunities for Vanguard Energy and Franklin Natural

0.87
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Vanguard and Franklin is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Energy Index and Franklin Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Natural Res and Vanguard Energy 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 Vanguard Energy Index are associated (or correlated) with Franklin Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Natural Res has no effect on the direction of Vanguard Energy i.e., Vanguard Energy and Franklin Natural go up and down completely randomly.

Pair Corralation between Vanguard Energy and Franklin Natural

Assuming the 90 days horizon Vanguard Energy Index is expected to generate 1.21 times more return on investment than Franklin Natural. However, Vanguard Energy is 1.21 times more volatile than Franklin Natural Resources. It trades about -0.03 of its potential returns per unit of risk. Franklin Natural Resources is currently generating about -0.11 per unit of risk. If you would invest  6,355  in Vanguard Energy Index on October 8, 2024 and sell it today you would lose (168.00) from holding Vanguard Energy Index or give up 2.64% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Vanguard Energy Index  vs.  Franklin Natural Resources

 Performance 
       Timeline  
Vanguard Energy Index 

Risk-Adjusted Performance

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Weak
 
Strong
Very Weak
Over the last 90 days Vanguard Energy Index has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vanguard Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Franklin Natural Res 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Franklin Natural Resources 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.

Vanguard Energy and Franklin Natural Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Vanguard Energy and Franklin Natural

The main advantage of trading using opposite Vanguard Energy and Franklin Natural positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Energy position performs unexpectedly, Franklin Natural 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 Natural will offset losses from the drop in Franklin Natural's long position.
The idea behind Vanguard Energy Index and Franklin Natural Resources 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.

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