Correlation Between Franklin Natural and Northern Lights
Can any of the company-specific risk be diversified away by investing in both Franklin Natural and Northern Lights 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 Natural and Northern Lights into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Franklin Natural Resources and Northern Lights, you can compare the effects of market volatilities on Franklin Natural and Northern Lights 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 Natural with a short position of Northern Lights. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Natural and Northern Lights.
Diversification Opportunities for Franklin Natural and Northern Lights
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Franklin and Northern is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Natural Resources and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and Franklin Natural 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 Natural Resources are associated (or correlated) with Northern Lights. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Lights has no effect on the direction of Franklin Natural i.e., Franklin Natural and Northern Lights go up and down completely randomly.
Pair Corralation between Franklin Natural and Northern Lights
Assuming the 90 days horizon Franklin Natural is expected to generate 1.48 times less return on investment than Northern Lights. In addition to that, Franklin Natural is 1.28 times more volatile than Northern Lights. It trades about 0.1 of its total potential returns per unit of risk. Northern Lights is currently generating about 0.19 per unit of volatility. If you would invest 1,112 in Northern Lights on September 2, 2024 and sell it today you would earn a total of 101.00 from holding Northern Lights or generate 9.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Franklin Natural Resources vs. Northern Lights
Performance |
| Timeline |
| Franklin Natural Res |
| Northern Lights |
Franklin Natural and Northern Lights Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Franklin Natural and Northern Lights
The main advantage of trading using opposite Franklin Natural and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin Natural position performs unexpectedly, Northern Lights 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 Northern Lights will offset losses from the drop in Northern Lights' long position.| Franklin Natural vs. Legg Mason Bw | Franklin Natural vs. Qs Large Cap | Franklin Natural vs. Dodge Cox Stock | Franklin Natural vs. Fidelity Series 1000 |
| Northern Lights vs. Navigator Tactical Fixed | Northern Lights vs. Navigator Tactical Fixed | Northern Lights vs. Navigator Tactical Fixed | Northern Lights vs. Navigator Tactical Investment |
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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