Correlation Between Franklin Emerging and Extended Market
Can any of the company-specific risk be diversified away by investing in both Franklin Emerging and Extended Market 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 Extended Market 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 Extended Market Index, you can compare the effects of market volatilities on Franklin Emerging and Extended Market 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 Extended Market. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Emerging and Extended Market.
Diversification Opportunities for Franklin Emerging and Extended Market
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Franklin and Extended is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Emerging Market and Extended Market Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Extended Market Index 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 Extended Market. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Extended Market Index has no effect on the direction of Franklin Emerging i.e., Franklin Emerging and Extended Market go up and down completely randomly.
Pair Corralation between Franklin Emerging and Extended Market
Assuming the 90 days horizon Franklin Emerging is expected to generate 1.33 times less return on investment than Extended Market. But when comparing it to its historical volatility, Franklin Emerging Market is 3.8 times less risky than Extended Market. It trades about 0.23 of its potential returns per unit of risk. Extended Market Index is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,837 in Extended Market Index on August 27, 2024 and sell it today you would earn a total of 653.00 from holding Extended Market Index or generate 35.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Franklin Emerging Market vs. Extended Market Index
Performance |
| Timeline |
| Franklin Emerging Market |
| Extended Market Index |
Franklin Emerging and Extended Market Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Franklin Emerging and Extended Market
The main advantage of trading using opposite Franklin Emerging and Extended Market positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin Emerging position performs unexpectedly, Extended Market 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 Extended Market will offset losses from the drop in Extended Market's long position.| Franklin Emerging vs. Chartwell Short Duration | Franklin Emerging vs. Ultra Short Term Fixed | Franklin Emerging vs. Maryland Tax Free Bond | Franklin Emerging vs. Bbh Intermediate Municipal |
| Extended Market vs. Income Fund Income | Extended Market vs. Usaa Nasdaq 100 | Extended Market vs. Victory Diversified Stock | Extended Market vs. Intermediate Term Bond Fund |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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