Correlation Between Dow Jones and Franklin Utilities
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Franklin Utilities 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 Dow Jones and Franklin Utilities into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and Franklin Utilities Fund, you can compare the effects of market volatilities on Dow Jones and Franklin Utilities 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 Dow Jones with a short position of Franklin Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Franklin Utilities.
Diversification Opportunities for Dow Jones and Franklin Utilities
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Dow and Franklin is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Franklin Utilities Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Utilities and Dow Jones 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 Dow Jones Industrial are associated (or correlated) with Franklin Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Utilities has no effect on the direction of Dow Jones i.e., Dow Jones and Franklin Utilities go up and down completely randomly.
Pair Corralation between Dow Jones and Franklin Utilities
Assuming the 90 days trading horizon Dow Jones is expected to generate 2.12 times less return on investment than Franklin Utilities. But when comparing it to its historical volatility, Dow Jones Industrial is 1.25 times less risky than Franklin Utilities. It trades about 0.1 of its potential returns per unit of risk. Franklin Utilities Fund is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 1,871 in Franklin Utilities Fund on August 29, 2024 and sell it today you would earn a total of 721.00 from holding Franklin Utilities Fund or generate 38.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Franklin Utilities Fund
Performance |
| Timeline |
Dow Jones and Franklin Utilities Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Franklin Utilities Fund
Pair trading matchups for Franklin Utilities
Pair Trading with Dow Jones and Franklin Utilities
The main advantage of trading using opposite Dow Jones and Franklin Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Franklin Utilities 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 Utilities will offset losses from the drop in Franklin Utilities' long position.| Dow Jones vs. Kaltura | Dow Jones vs. Artisan Partners Asset | Dow Jones vs. US Global Investors | Dow Jones vs. Analog Devices |
| Franklin Utilities vs. John Hancock Financial | Franklin Utilities vs. Financials Ultrasector Profund | Franklin Utilities vs. Pimco Capital Sec | Franklin Utilities vs. Mesirow Financial Small |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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