Correlation Between Franklin Lifesmart and Federated Hermes
Can any of the company-specific risk be diversified away by investing in both Franklin Lifesmart and Federated Hermes 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 Lifesmart and Federated Hermes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Franklin Lifesmart Retirement and Federated Hermes Conservative, you can compare the effects of market volatilities on Franklin Lifesmart and Federated Hermes 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 Lifesmart with a short position of Federated Hermes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Lifesmart and Federated Hermes.
Diversification Opportunities for Franklin Lifesmart and Federated Hermes
0.29 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Franklin and Federated is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Lifesmart Retirement and Federated Hermes Conservative in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Hermes Con and Franklin Lifesmart 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 Lifesmart Retirement are associated (or correlated) with Federated Hermes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Hermes Con has no effect on the direction of Franklin Lifesmart i.e., Franklin Lifesmart and Federated Hermes go up and down completely randomly.
Pair Corralation between Franklin Lifesmart and Federated Hermes
Assuming the 90 days horizon Franklin Lifesmart Retirement is expected to generate 3.34 times more return on investment than Federated Hermes. However, Franklin Lifesmart is 3.34 times more volatile than Federated Hermes Conservative. It trades about 0.13 of its potential returns per unit of risk. Federated Hermes Conservative is currently generating about 0.22 per unit of risk. If you would invest 974.00 in Franklin Lifesmart Retirement on September 12, 2024 and sell it today you would earn a total of 108.00 from holding Franklin Lifesmart Retirement or generate 11.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.6% |
| Values | Daily Returns |
Franklin Lifesmart Retirement vs. Federated Hermes Conservative
Performance |
| Timeline |
| Franklin Lifesmart |
| Federated Hermes Con |
Franklin Lifesmart and Federated Hermes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Franklin Lifesmart and Federated Hermes
The main advantage of trading using opposite Franklin Lifesmart and Federated Hermes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin Lifesmart position performs unexpectedly, Federated Hermes 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 Federated Hermes will offset losses from the drop in Federated Hermes' long position.The idea behind Franklin Lifesmart Retirement and Federated Hermes Conservative 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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