Correlation Between Franklin Emerging and Saat Defensive
Can any of the company-specific risk be diversified away by investing in both Franklin Emerging and Saat Defensive 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 Emerging and Saat Defensive into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Franklin Emerging Market and Saat Defensive Strategy, you can compare the effects of market volatilities on Franklin Emerging and Saat Defensive 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 Emerging with a short position of Saat Defensive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Emerging and Saat Defensive.
Diversification Opportunities for Franklin Emerging and Saat Defensive
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between FRANKLIN and Saat is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Emerging Market and Saat Defensive Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Saat Defensive Strategy and Franklin Emerging 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 Emerging Market are associated (or correlated) with Saat Defensive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Saat Defensive Strategy has no effect on the direction of Franklin Emerging i.e., Franklin Emerging and Saat Defensive go up and down completely randomly.
Pair Corralation between Franklin Emerging and Saat Defensive
Assuming the 90 days horizon Franklin Emerging Market is expected to generate 2.05 times more return on investment than Saat Defensive. However, Franklin Emerging is 2.05 times more volatile than Saat Defensive Strategy. It trades about 0.2 of its potential returns per unit of risk. Saat Defensive Strategy is currently generating about 0.15 per unit of risk. If you would invest 903.00 in Franklin Emerging Market on November 1, 2024 and sell it today you would earn a total of 271.00 from holding Franklin Emerging Market or generate 30.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.79% |
| Values | Daily Returns |
Franklin Emerging Market vs. Saat Defensive Strategy
Performance |
| Timeline |
| Franklin Emerging Market |
| Saat Defensive Strategy |
Franklin Emerging and Saat Defensive Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Franklin Emerging and Saat Defensive
The main advantage of trading using opposite Franklin Emerging and Saat Defensive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin Emerging position performs unexpectedly, Saat Defensive 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 Saat Defensive will offset losses from the drop in Saat Defensive's long position.The idea behind Franklin Emerging Market and Saat Defensive Strategy 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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