Correlation Between Ford and Franklin Liberty
Can any of the company-specific risk be diversified away by investing in both Ford and Franklin Liberty 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 Ford and Franklin Liberty into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Franklin Liberty International, you can compare the effects of market volatilities on Ford and Franklin Liberty 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 Ford with a short position of Franklin Liberty. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Franklin Liberty.
Diversification Opportunities for Ford and Franklin Liberty
-0.26 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Ford and Franklin is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Franklin Liberty International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Liberty Int and Ford 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 Ford Motor are associated (or correlated) with Franklin Liberty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Liberty Int has no effect on the direction of Ford i.e., Ford and Franklin Liberty go up and down completely randomly.
Pair Corralation between Ford and Franklin Liberty
Taking into account the 90-day investment horizon Ford Motor is expected to generate 12.31 times more return on investment than Franklin Liberty. However, Ford is 12.31 times more volatile than Franklin Liberty International. It trades about 0.05 of its potential returns per unit of risk. Franklin Liberty International is currently generating about 0.06 per unit of risk. If you would invest 1,091 in Ford Motor on August 24, 2024 and sell it today you would earn a total of 27.00 from holding Ford Motor or generate 2.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Franklin Liberty International
Performance |
| Timeline |
| Ford Motor |
| Franklin Liberty Int |
Ford and Franklin Liberty Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Franklin Liberty
The main advantage of trading using opposite Ford and Franklin Liberty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Franklin Liberty 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 Liberty will offset losses from the drop in Franklin Liberty's long position.The idea behind Ford Motor and Franklin Liberty International 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.| Franklin Liberty vs. Franklin Liberty High | Franklin Liberty vs. Franklin Liberty Senior | Franklin Liberty vs. Franklin Liberty Intermediate | Franklin Liberty vs. Franklin Liberty Short |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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