Correlation Between First Trust and Franklin Liberty
Can any of the company-specific risk be diversified away by investing in both First Trust and Franklin Liberty 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 First Trust and Franklin Liberty into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Enhanced and Franklin Liberty High, you can compare the effects of market volatilities on First Trust and Franklin Liberty 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 First Trust with a short position of Franklin Liberty. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Franklin Liberty.
Diversification Opportunities for First Trust and Franklin Liberty
0.45 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between First and Franklin is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Enhanced and Franklin Liberty High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Liberty High and First Trust 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 First Trust Enhanced are associated (or correlated) with Franklin Liberty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Liberty High has no effect on the direction of First Trust i.e., First Trust and Franklin Liberty go up and down completely randomly.
Pair Corralation between First Trust and Franklin Liberty
Given the investment horizon of 90 days First Trust is expected to generate 2.38 times less return on investment than Franklin Liberty. But when comparing it to its historical volatility, First Trust Enhanced is 8.31 times less risky than Franklin Liberty. It trades about 0.51 of its potential returns per unit of risk. Franklin Liberty High is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 2,404 in Franklin Liberty High on August 30, 2024 and sell it today you would earn a total of 19.00 from holding Franklin Liberty High or generate 0.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Enhanced vs. Franklin Liberty High
Performance |
| Timeline |
| First Trust Enhanced |
| Franklin Liberty High |
First Trust and Franklin Liberty Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Franklin Liberty
The main advantage of trading using opposite First Trust and Franklin Liberty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Franklin Liberty 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 Franklin Liberty will offset losses from the drop in Franklin Liberty's long position.| First Trust vs. First Trust Low | First Trust vs. First Trust Senior | First Trust vs. First Trust TCW | First Trust vs. First Trust Tactical |
| Franklin Liberty vs. iShares Edge High | Franklin Liberty vs. Franklin Liberty Senior | Franklin Liberty vs. Franklin Liberty International | Franklin Liberty vs. PGIM Active High |
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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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