Correlation Between Franklin Natural and Vanguard Energy
Can any of the company-specific risk be diversified away by investing in both Franklin Natural and Vanguard Energy 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 Vanguard Energy 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 Vanguard Energy Index, you can compare the effects of market volatilities on Franklin Natural and Vanguard Energy 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 Vanguard Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Natural and Vanguard Energy.
Diversification Opportunities for Franklin Natural and Vanguard Energy
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Franklin and Vanguard is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Natural Resources and Vanguard Energy Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Energy Index 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 Vanguard Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Energy Index has no effect on the direction of Franklin Natural i.e., Franklin Natural and Vanguard Energy go up and down completely randomly.
Pair Corralation between Franklin Natural and Vanguard Energy
Assuming the 90 days horizon Franklin Natural is expected to generate 1.64 times less return on investment than Vanguard Energy. But when comparing it to its historical volatility, Franklin Natural Resources is 1.12 times less risky than Vanguard Energy. It trades about 0.02 of its potential returns per unit of risk. Vanguard Energy Index is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 5,684 in Vanguard Energy Index on October 30, 2024 and sell it today you would earn a total of 667.00 from holding Vanguard Energy Index or generate 11.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Franklin Natural Resources vs. Vanguard Energy Index
Performance |
| Timeline |
| Franklin Natural Res |
| Vanguard Energy Index |
Franklin Natural and Vanguard Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Franklin Natural and Vanguard Energy
The main advantage of trading using opposite Franklin Natural and Vanguard Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin Natural position performs unexpectedly, Vanguard Energy 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 Vanguard Energy will offset losses from the drop in Vanguard Energy's long position.| Franklin Natural vs. Towpath Technology | Franklin Natural vs. Vanguard Information Technology | Franklin Natural vs. Goldman Sachs Technology | Franklin Natural vs. Columbia Global Technology |
| Vanguard Energy vs. Vanguard Financials Index | Vanguard Energy vs. Vanguard Utilities Index | Vanguard Energy vs. Vanguard Materials Index | Vanguard Energy vs. Vanguard Sumer Staples |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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