Correlation Between Franklin Adjustable and Diamond Hill
Can any of the company-specific risk be diversified away by investing in both Franklin Adjustable and Diamond Hill 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 Franklin Adjustable and Diamond Hill into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Franklin Adjustable Government and Diamond Hill Large, you can compare the effects of market volatilities on Franklin Adjustable and Diamond Hill 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 Franklin Adjustable with a short position of Diamond Hill. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Adjustable and Diamond Hill.
Diversification Opportunities for Franklin Adjustable and Diamond Hill
0.14 | Correlation Coefficient |
Average diversification
The 3 months correlation between Franklin and Diamond is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Adjustable Government and Diamond Hill Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Hill Large and Franklin Adjustable 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 Franklin Adjustable Government are associated (or correlated) with Diamond Hill. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamond Hill Large has no effect on the direction of Franklin Adjustable i.e., Franklin Adjustable and Diamond Hill go up and down completely randomly.
Pair Corralation between Franklin Adjustable and Diamond Hill
Assuming the 90 days horizon Franklin Adjustable is expected to generate 3.24 times less return on investment than Diamond Hill. But when comparing it to its historical volatility, Franklin Adjustable Government is 7.57 times less risky than Diamond Hill. It trades about 0.12 of its potential returns per unit of risk. Diamond Hill Large is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 1,044 in Diamond Hill Large on October 9, 2024 and sell it today you would earn a total of 233.00 from holding Diamond Hill Large or generate 22.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Franklin Adjustable Government vs. Diamond Hill Large
Performance |
| Timeline |
| Franklin Adjustable |
| Diamond Hill Large |
Franklin Adjustable and Diamond Hill Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Franklin Adjustable and Diamond Hill
The main advantage of trading using opposite Franklin Adjustable and Diamond Hill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin Adjustable position performs unexpectedly, Diamond Hill 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 Diamond Hill will offset losses from the drop in Diamond Hill's long position.The idea behind Franklin Adjustable Government and Diamond Hill Large 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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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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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