Correlation Between Vanguard Small and Franklin Growth

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

By analyzing existing cross correlation between Vanguard Small Cap Value and Franklin Growth Opportunities, you can compare the effects of market volatilities on Vanguard Small and Franklin Growth 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 Small with a short position of Franklin Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and Franklin Growth.

Diversification Opportunities for Vanguard Small and Franklin Growth

0.87

Correlation Coefficient

Vanguard Small  Franklin Growth

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 Small Cap Value and Franklin Growth Opportunities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Growth Oppo and Vanguard Small 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 Small Cap Value are associated (or correlated) with Franklin Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Growth Oppo has no effect on the direction of Vanguard Small i.e., Vanguard Small and Franklin Growth go up and down completely randomly.

Pair Corralation between Vanguard Small and Franklin Growth

Assuming the 90 days horizon Vanguard Small is expected to generate 115.5 times less return on investment than Franklin Growth. In addition to that, Vanguard Small is 1.02 times more volatile than Franklin Growth Opportunities. It trades about 0.0 of its total potential returns per unit of risk. Franklin Growth Opportunities is currently generating about 0.04 per unit of volatility. If you would invest  6,009  in Franklin Growth Opportunities on September 20, 2024 and sell it today you would earn a total of  157.00  from holding Franklin Growth Opportunities or generate 2.61% return on investment over 90 days.

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

Vanguard Small Cap Value  vs.  Franklin Growth Opportunities

Vanguard Small Cap

Risk-Adjusted Performance

0 of 100

Insignificant

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

Franklin Growth Oppo

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Growth Opportunities are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Franklin Growth is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Small and Franklin Growth

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

The idea behind Vanguard Small Cap Value and Franklin Growth Opportunities 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.