Correlation Between American Balanced and Franklin Income
Can any of the company-specific risk be diversified away by investing in both American Balanced and Franklin Income 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 American Balanced and Franklin Income into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Balanced Fund and Franklin Income Fund, you can compare the effects of market volatilities on American Balanced and Franklin Income 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 American Balanced with a short position of Franklin Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Balanced and Franklin Income.
Diversification Opportunities for American Balanced and Franklin Income
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Franklin is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced Fund and Franklin Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Income and American Balanced 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 American Balanced Fund are associated (or correlated) with Franklin Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Income has no effect on the direction of American Balanced i.e., American Balanced and Franklin Income go up and down completely randomly.
Pair Corralation between American Balanced and Franklin Income
Assuming the 90 days horizon American Balanced Fund is expected to generate 1.61 times more return on investment than Franklin Income. However, American Balanced is 1.61 times more volatile than Franklin Income Fund. It trades about 0.14 of its potential returns per unit of risk. Franklin Income Fund is currently generating about 0.16 per unit of risk. If you would invest 3,038 in American Balanced Fund on September 3, 2024 and sell it today you would earn a total of 623.00 from holding American Balanced Fund or generate 20.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Balanced Fund vs. Franklin Income Fund
Performance |
| Timeline |
| American Balanced |
| Franklin Income |
American Balanced and Franklin Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Balanced and Franklin Income
The main advantage of trading using opposite American Balanced and Franklin Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Balanced position performs unexpectedly, Franklin Income 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 Income will offset losses from the drop in Franklin Income's long position.| American Balanced vs. Mondrian Emerging Markets | American Balanced vs. Transamerica Emerging Markets | American Balanced vs. The Hartford Emerging | American Balanced vs. Kinetics Market Opportunities |
| Franklin Income vs. American Funds American | Franklin Income vs. American Funds American | Franklin Income vs. American Balanced | Franklin Income vs. American Balanced Fund |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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