Correlation Between Franklin Federal and American Balanced
Can any of the company-specific risk be diversified away by investing in both Franklin Federal and American Balanced 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 American Balanced into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Franklin Federal Limited Term and American Balanced Fund, you can compare the effects of market volatilities on Franklin Federal and American Balanced 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 American Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Federal and American Balanced.
Diversification Opportunities for Franklin Federal and American Balanced
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Franklin and American is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Federal Limited Term and American Balanced Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Balanced 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 Limited Term are associated (or correlated) with American Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Balanced has no effect on the direction of Franklin Federal i.e., Franklin Federal and American Balanced go up and down completely randomly.
Pair Corralation between Franklin Federal and American Balanced
Assuming the 90 days horizon Franklin Federal is expected to generate 5.87 times less return on investment than American Balanced. But when comparing it to its historical volatility, Franklin Federal Limited Term is 3.97 times less risky than American Balanced. It trades about 0.19 of its potential returns per unit of risk. American Balanced Fund is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 3,583 in American Balanced Fund on September 2, 2024 and sell it today you would earn a total of 103.00 from holding American Balanced Fund or generate 2.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Franklin Federal Limited Term vs. American Balanced Fund
Performance |
| Timeline |
| Franklin Federal Lim |
| American Balanced |
Franklin Federal and American Balanced Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Franklin Federal and American Balanced
The main advantage of trading using opposite Franklin Federal and American Balanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin Federal position performs unexpectedly, American Balanced 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 Balanced will offset losses from the drop in American Balanced's long position.| Franklin Federal vs. Eip Growth And | Franklin Federal vs. Kinetics Small Cap | Franklin Federal vs. Chase Growth Fund | Franklin Federal vs. T Rowe Price |
| American Balanced vs. Income Fund Of | American Balanced vs. Capital Income Builder | American Balanced vs. Capital World Growth | American Balanced vs. Growth Fund Of |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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