Correlation Between Franklin Liberty and First Trust
Can any of the company-specific risk be diversified away by investing in both Franklin Liberty and First Trust 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 Liberty and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Franklin Liberty Short and First Trust Municipal, you can compare the effects of market volatilities on Franklin Liberty and First Trust 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 Liberty with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Liberty and First Trust.
Diversification Opportunities for Franklin Liberty and First Trust
0.49 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Franklin and First is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Liberty Short and First Trust Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Municipal and Franklin Liberty 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 Liberty Short are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Municipal has no effect on the direction of Franklin Liberty i.e., Franklin Liberty and First Trust go up and down completely randomly.
Pair Corralation between Franklin Liberty and First Trust
Given the investment horizon of 90 days Franklin Liberty is expected to generate 2.52 times less return on investment than First Trust. But when comparing it to its historical volatility, Franklin Liberty Short is 5.25 times less risky than First Trust. It trades about 0.29 of its potential returns per unit of risk. First Trust Municipal is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 4,860 in First Trust Municipal on September 1, 2024 and sell it today you would earn a total of 58.00 from holding First Trust Municipal or generate 1.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Franklin Liberty Short vs. First Trust Municipal
Performance |
| Timeline |
| Franklin Liberty Short |
| First Trust Municipal |
Franklin Liberty and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Franklin Liberty and First Trust
The main advantage of trading using opposite Franklin Liberty and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin Liberty position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.| Franklin Liberty vs. SPDR Barclays Long | Franklin Liberty vs. SPDR Portfolio Intermediate | Franklin Liberty vs. SPDR Barclays Short | Franklin Liberty vs. SPDR Barclays Intermediate |
| First Trust vs. SSGA Active Trust | First Trust vs. SPDR Nuveen Municipal | First Trust vs. iShares Short Maturity | First Trust vs. First Trust Flexible |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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