Correlation Between Franklin California and Sarofim Equity
Can any of the company-specific risk be diversified away by investing in both Franklin California and Sarofim Equity 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 California and Sarofim Equity into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Franklin California Intermediate Term and Sarofim Equity, you can compare the effects of market volatilities on Franklin California and Sarofim Equity 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 California with a short position of Sarofim Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin California and Sarofim Equity.
Diversification Opportunities for Franklin California and Sarofim Equity
-0.18 | Correlation Coefficient |
Good diversification
The 3 months correlation between Franklin and Sarofim is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Franklin California Intermedia and Sarofim Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sarofim Equity and Franklin California 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 California Intermediate Term are associated (or correlated) with Sarofim Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sarofim Equity has no effect on the direction of Franklin California i.e., Franklin California and Sarofim Equity go up and down completely randomly.
Pair Corralation between Franklin California and Sarofim Equity
Assuming the 90 days horizon Franklin California is expected to generate 2.91 times less return on investment than Sarofim Equity. But when comparing it to its historical volatility, Franklin California Intermediate Term is 4.74 times less risky than Sarofim Equity. It trades about 0.14 of its potential returns per unit of risk. Sarofim Equity is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,591 in Sarofim Equity on September 3, 2024 and sell it today you would earn a total of 127.00 from holding Sarofim Equity or generate 7.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Franklin California Intermedia vs. Sarofim Equity
Performance |
| Timeline |
| Franklin California |
| Sarofim Equity |
Franklin California and Sarofim Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Franklin California and Sarofim Equity
The main advantage of trading using opposite Franklin California and Sarofim Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin California position performs unexpectedly, Sarofim Equity 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 Sarofim Equity will offset losses from the drop in Sarofim Equity's long position.The idea behind Franklin California Intermediate Term and Sarofim Equity 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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