Correlation Between Western Asset and Franklin Convertible

Can any of the company-specific risk be diversified away by investing in both Western Asset and Franklin Convertible 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 Convertible 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 Vertible Securities, you can compare the effects of market volatilities on Western Asset and Franklin Convertible 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 Convertible. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and Franklin Convertible.

Diversification Opportunities for Western Asset and Franklin Convertible

-0.36

Correlation Coefficient

Western Asset  Franklin Convertible

Very good diversification

The 3 months correlation between Western and Franklin is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset E and Franklin Vertible Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Convertible 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 Convertible. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Convertible has no effect on the direction of Western Asset i.e., Western Asset and Franklin Convertible go up and down completely randomly.

Pair Corralation between Western Asset and Franklin Convertible

Assuming the 90 days horizon Western Asset E is expected to generate 0.45 times more return on investment than Franklin Convertible. However, Western Asset E is 2.22 times less risky than Franklin Convertible. It trades about 0.12 of its potential returns per unit of risk. Franklin Vertible Securities is currently generating about -0.05 per unit of risk. If you would invest  1,029  in Western Asset E on December 30, 2024 and sell it today you would earn a total of  25.00  from holding Western Asset E or generate 2.43% return on investment over 90 days.

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

Western Asset E  vs.  Franklin Vertible Securities

Western Asset E

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Asset E are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. 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 Convertible

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Western Asset and Franklin Convertible

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

The idea behind Western Asset E and Franklin Vertible 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.