Correlation Between Index Fund and Franklin Small

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

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

Diversification Opportunities for Index Fund and Franklin Small

0.56

Correlation Coefficient

Index Fund  Franklin Small

Very weak diversification

The 3 months correlation between Index and Franklin is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Index Fund Class and Franklin Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Small Cap and Index Fund 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 Index Fund Class are associated (or correlated) with Franklin Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Small Cap has no effect on the direction of Index Fund i.e., Index Fund and Franklin Small go up and down completely randomly.

Pair Corralation between Index Fund and Franklin Small

Assuming the 90 days horizon Index Fund is expected to generate 1.47 times less return on investment than Franklin Small. But when comparing it to its historical volatility, Index Fund Class is 1.25 times less risky than Franklin Small. It trades about 0.05 of its potential returns per unit of risk. Franklin Small Cap is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,499  in Franklin Small Cap on October 25, 2024 and sell it today you would earn a total of  186.00  from holding Franklin Small Cap or generate 12.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.51%
Values	Daily Returns

Index Fund Class  vs.  Franklin Small Cap

Index Fund Class

Risk-Adjusted Performance

0 of 100

Very Weak

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

Franklin Small Cap

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Small Cap are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Franklin Small may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Index Fund and Franklin Small

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

The idea behind Index Fund Class and Franklin Small Cap 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.