Correlation Between Franklin Electric and Smith AO
Can any of the company-specific risk be diversified away by investing in both Franklin Electric and Smith AO 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 Electric and Smith AO into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Franklin Electric Co and Smith AO, you can compare the effects of market volatilities on Franklin Electric and Smith AO 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 Electric with a short position of Smith AO. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Electric and Smith AO.
Diversification Opportunities for Franklin Electric and Smith AO
0.02 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Franklin and Smith is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Electric Co and Smith AO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smith AO and Franklin Electric 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 Electric Co are associated (or correlated) with Smith AO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smith AO has no effect on the direction of Franklin Electric i.e., Franklin Electric and Smith AO go up and down completely randomly.
Pair Corralation between Franklin Electric and Smith AO
Given the investment horizon of 90 days Franklin Electric Co is expected to generate 3.0 times more return on investment than Smith AO. However, Franklin Electric is 3.0 times more volatile than Smith AO. It trades about 0.09 of its potential returns per unit of risk. Smith AO is currently generating about -0.27 per unit of risk. If you would invest 10,180 in Franklin Electric Co on August 24, 2024 and sell it today you would earn a total of 484.00 from holding Franklin Electric Co or generate 4.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Franklin Electric Co vs. Smith AO
Performance |
| Timeline |
| Franklin Electric |
| Smith AO |
Franklin Electric and Smith AO Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Franklin Electric and Smith AO
The main advantage of trading using opposite Franklin Electric and Smith AO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin Electric position performs unexpectedly, Smith AO 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 Smith AO will offset losses from the drop in Smith AO's long position.| Franklin Electric vs. Illinois Tool Works | Franklin Electric vs. Small Cap Core | Franklin Electric vs. Freedom Holding Corp | Franklin Electric vs. Gfl Environmental Holdings |
| Smith AO vs. Dover | Smith AO vs. Illinois Tool Works | Smith AO vs. Xylem Inc | Smith AO vs. Franklin Electric Co |
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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