Correlation Between Franklin Moderate and American Funds
Can any of the company-specific risk be diversified away by investing in both Franklin Moderate and American Funds 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 Moderate and American Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Franklin Moderate Allocation and American Funds Retirement, you can compare the effects of market volatilities on Franklin Moderate and American Funds 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 Moderate with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Moderate and American Funds.
Diversification Opportunities for Franklin Moderate and American Funds
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Franklin and American is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Moderate Allocation and American Funds Retirement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Retirement and Franklin Moderate 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 Moderate Allocation are associated (or correlated) with American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Retirement has no effect on the direction of Franklin Moderate i.e., Franklin Moderate and American Funds go up and down completely randomly.
Pair Corralation between Franklin Moderate and American Funds
Assuming the 90 days horizon Franklin Moderate Allocation is expected to generate 1.21 times more return on investment than American Funds. However, Franklin Moderate is 1.21 times more volatile than American Funds Retirement. It trades about 0.35 of its potential returns per unit of risk. American Funds Retirement is currently generating about 0.18 per unit of risk. If you would invest 1,578 in Franklin Moderate Allocation on September 1, 2024 and sell it today you would earn a total of 51.00 from holding Franklin Moderate Allocation or generate 3.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Franklin Moderate Allocation vs. American Funds Retirement
Performance |
| Timeline |
| Franklin Moderate |
| American Funds Retirement |
Franklin Moderate and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Franklin Moderate and American Funds
The main advantage of trading using opposite Franklin Moderate and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin Moderate position performs unexpectedly, American Funds 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 American Funds will offset losses from the drop in American Funds' long position.| Franklin Moderate vs. Jennison Natural Resources | Franklin Moderate vs. Oil Gas Ultrasector | Franklin Moderate vs. Clearbridge Energy Mlp | Franklin Moderate vs. Alpsalerian Energy Infrastructure |
| American Funds vs. Mesirow Financial Small | American Funds vs. Davis Financial Fund | American Funds vs. Icon Financial Fund | American Funds vs. Blackrock Financial Institutions |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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