Correlation Between Western Asset and Franklin

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

By analyzing existing cross correlation between Western Asset E and Franklin K2 Alternative, you can compare the effects of market volatilities on Western Asset 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 Western Asset with a short position of Franklin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and Franklin.

Diversification Opportunities for Western Asset and Franklin

0.37

Correlation Coefficient

Western Asset  Franklin

Weak diversification

The 3 months correlation between Western and Franklin is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset E and Franklin K2 Alternative in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin K2 Alternative and Western Asset 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 Western Asset E 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 K2 Alternative has no effect on the direction of Western Asset i.e., Western Asset and Franklin go up and down completely randomly.

Pair Corralation between Western Asset and Franklin

Assuming the 90 days horizon Western Asset E is expected to generate 0.12 times more return on investment than Franklin. However, Western Asset E is 8.56 times less risky than Franklin. It trades about -0.39 of its potential returns per unit of risk. Franklin K2 Alternative is currently generating about -0.21 per unit of risk. If you would invest  1,053  in Western Asset E on October 13, 2024 and sell it today you would lose (22.00) from holding Western Asset E or give up 2.09% of portfolio value over 90 days.

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

Western Asset E  vs.  Franklin K2 Alternative

Western Asset E

Risk-Adjusted Performance

0 of 100

Very Weak

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

Franklin K2 Alternative

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin K2 Alternative 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 Western Asset and Franklin

The main advantage of trading using opposite Western Asset and Franklin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset 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 Western Asset E and Franklin K2 Alternative 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.