Correlation Between Franklin Federal and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Franklin Federal and Dow Jones 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 Federal and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Franklin Federal Tax Free and Dow Jones Industrial, you can compare the effects of market volatilities on Franklin Federal and Dow Jones 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 Federal with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Federal and Dow Jones.
Diversification Opportunities for Franklin Federal and Dow Jones
0.06 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Franklin and Dow is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Federal Tax Free and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial and Franklin Federal 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 Federal Tax Free are associated (or correlated) with Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of Franklin Federal i.e., Franklin Federal and Dow Jones go up and down completely randomly.
Pair Corralation between Franklin Federal and Dow Jones
Assuming the 90 days horizon Franklin Federal is expected to generate 2.89 times less return on investment than Dow Jones. But when comparing it to its historical volatility, Franklin Federal Tax Free is 2.7 times less risky than Dow Jones. It trades about 0.07 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 3,394,710 in Dow Jones Industrial on August 24, 2024 and sell it today you would earn a total of 1,034,941 from holding Dow Jones Industrial or generate 30.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Franklin Federal Tax Free vs. Dow Jones Industrial
Performance |
| Timeline |
Franklin Federal and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Franklin Federal Tax Free
Pair trading matchups for Franklin Federal
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Franklin Federal and Dow Jones
The main advantage of trading using opposite Franklin Federal and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin Federal position performs unexpectedly, Dow Jones 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 Dow Jones will offset losses from the drop in Dow Jones' long position.| Franklin Federal vs. Volumetric Fund Volumetric | Franklin Federal vs. Ab E Opportunities | Franklin Federal vs. Rational Special Situations | Franklin Federal vs. T Rowe Price |
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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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