Correlation Between Franklin Income and Vanguard
Can any of the company-specific risk be diversified away by investing in both Franklin Income and Vanguard 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 Income and Vanguard into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Franklin Income Equity and Vanguard SP 500, you can compare the effects of market volatilities on Franklin Income and Vanguard 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 Income with a short position of Vanguard. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Income and Vanguard.
Diversification Opportunities for Franklin Income and Vanguard
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Franklin and Vanguard is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Income Equity and Vanguard SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP 500 and Franklin Income 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 Income Equity are associated (or correlated) with Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP 500 has no effect on the direction of Franklin Income i.e., Franklin Income and Vanguard go up and down completely randomly.
Pair Corralation between Franklin Income and Vanguard
Given the investment horizon of 90 days Franklin Income is expected to generate 1.8 times less return on investment than Vanguard. But when comparing it to its historical volatility, Franklin Income Equity is 1.35 times less risky than Vanguard. It trades about 0.1 of its potential returns per unit of risk. Vanguard SP 500 is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 43,210 in Vanguard SP 500 on September 14, 2024 and sell it today you would earn a total of 12,328 from holding Vanguard SP 500 or generate 28.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.6% |
| Values | Daily Returns |
Franklin Income Equity vs. Vanguard SP 500
Performance |
| Timeline |
| Franklin Income Equity |
| Vanguard SP 500 |
Franklin Income and Vanguard Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Franklin Income and Vanguard
The main advantage of trading using opposite Franklin Income and Vanguard positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin Income position performs unexpectedly, Vanguard 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 will offset losses from the drop in Vanguard's long position.| Franklin Income vs. Vanguard SP 500 | Franklin Income vs. Vanguard Real Estate | Franklin Income vs. Vanguard Total Bond | Franklin Income vs. Vanguard High Dividend |
| Vanguard vs. Vanguard Total Stock | Vanguard vs. Vanguard High Dividend | Vanguard vs. Vanguard Information Technology | Vanguard vs. Invesco QQQ Trust |
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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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