Correlation Between First Trust and Franklin Liberty
Can any of the company-specific risk be diversified away by investing in both First Trust and Franklin Liberty 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 First Trust and Franklin Liberty into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust TCW and Franklin Liberty High, you can compare the effects of market volatilities on First Trust and Franklin Liberty 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 First Trust with a short position of Franklin Liberty. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Franklin Liberty.
Diversification Opportunities for First Trust and Franklin Liberty
0.15 | Correlation Coefficient |
Average diversification
The 3 months correlation between First and Franklin is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding First Trust TCW and Franklin Liberty High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Liberty High and First Trust 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 First Trust TCW are associated (or correlated) with Franklin Liberty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Liberty High has no effect on the direction of First Trust i.e., First Trust and Franklin Liberty go up and down completely randomly.
Pair Corralation between First Trust and Franklin Liberty
Given the investment horizon of 90 days First Trust is expected to generate 2.25 times less return on investment than Franklin Liberty. In addition to that, First Trust is 1.5 times more volatile than Franklin Liberty High. It trades about 0.05 of its total potential returns per unit of risk. Franklin Liberty High is currently generating about 0.17 per unit of volatility. If you would invest 2,150 in Franklin Liberty High on August 26, 2024 and sell it today you would earn a total of 262.00 from holding Franklin Liberty High or generate 12.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust TCW vs. Franklin Liberty High
Performance |
| Timeline |
| First Trust TCW |
| Franklin Liberty High |
First Trust and Franklin Liberty Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Franklin Liberty
The main advantage of trading using opposite First Trust and Franklin Liberty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Franklin Liberty 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 Liberty will offset losses from the drop in Franklin Liberty's long position.| First Trust vs. First Trust Low | First Trust vs. First Trust Enhanced | First Trust vs. First Trust Tactical | First Trust vs. First Trust Managed |
| Franklin Liberty vs. First Trust Senior | Franklin Liberty vs. First Trust Low | Franklin Liberty vs. First Trust Enhanced | Franklin Liberty vs. First Trust TCW |
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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