Correlation Between Washington Mutual and Franklin Small

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

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

Diversification Opportunities for Washington Mutual and Franklin Small

0.8

Correlation Coefficient

Washington Mutual  Franklin Small

Very poor diversification

The 3 months correlation between Washington and Franklin is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Washington Mutual Investors and Franklin Small Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Small Mid and Washington Mutual 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 Washington Mutual Investors 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 Mid has no effect on the direction of Washington Mutual i.e., Washington Mutual and Franklin Small go up and down completely randomly.

Pair Corralation between Washington Mutual and Franklin Small

Assuming the 90 days horizon Washington Mutual is expected to generate 1.34 times less return on investment than Franklin Small. In addition to that, Washington Mutual is 1.02 times more volatile than Franklin Small Mid Cap. It trades about 0.06 of its total potential returns per unit of risk. Franklin Small Mid Cap is currently generating about 0.08 per unit of volatility. If you would invest  3,266  in Franklin Small Mid Cap on September 20, 2024 and sell it today you would earn a total of  1,420  from holding Franklin Small Mid Cap or generate 43.48% return on investment over 90 days.

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

Washington Mutual Investors  vs.  Franklin Small Mid Cap

Washington Mutual

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Washington Mutual Investors are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Washington Mutual is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Franklin Small Mid

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Small Mid Cap are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Franklin Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Washington Mutual and Franklin Small

The main advantage of trading using opposite Washington Mutual and Franklin Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Washington Mutual 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 Washington Mutual Investors and Franklin Small Mid 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.