Correlation Between Ford and Franklin Lifesmart
Can any of the company-specific risk be diversified away by investing in both Ford and Franklin Lifesmart 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 Lifesmart 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 Lifesmart 2040, you can compare the effects of market volatilities on Ford and Franklin Lifesmart 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 Lifesmart. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Franklin Lifesmart.
Diversification Opportunities for Ford and Franklin Lifesmart
0.28 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Ford and Franklin is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Franklin Lifesmart 2040 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Lifesmart 2040 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 Lifesmart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Lifesmart 2040 has no effect on the direction of Ford i.e., Ford and Franklin Lifesmart go up and down completely randomly.
Pair Corralation between Ford and Franklin Lifesmart
Taking into account the 90-day investment horizon Ford Motor is expected to generate 4.99 times more return on investment than Franklin Lifesmart. However, Ford is 4.99 times more volatile than Franklin Lifesmart 2040. It trades about 0.05 of its potential returns per unit of risk. Franklin Lifesmart 2040 is currently generating about 0.08 per unit of risk. If you would invest 1,092 in Ford Motor on August 26, 2024 and sell it today you would earn a total of 26.00 from holding Ford Motor or generate 2.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Franklin Lifesmart 2040
Performance |
| Timeline |
| Ford Motor |
| Franklin Lifesmart 2040 |
Ford and Franklin Lifesmart Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Franklin Lifesmart
The main advantage of trading using opposite Ford and Franklin Lifesmart positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Franklin Lifesmart 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 Lifesmart will offset losses from the drop in Franklin Lifesmart's long position.The idea behind Ford Motor and Franklin Lifesmart 2040 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 Lifesmart vs. Franklin Mutual Beacon | Franklin Lifesmart vs. Templeton Developing Markets | Franklin Lifesmart vs. Franklin Mutual Global | Franklin Lifesmart vs. Franklin Mutual Global |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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