Correlation Between Franklin International and FlexShares Quality
Can any of the company-specific risk be diversified away by investing in both Franklin International and FlexShares Quality 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 International and FlexShares Quality into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Franklin International Low and FlexShares Quality Dividend, you can compare the effects of market volatilities on Franklin International and FlexShares Quality 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 International with a short position of FlexShares Quality. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin International and FlexShares Quality.
Diversification Opportunities for Franklin International and FlexShares Quality
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Franklin and FlexShares is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Franklin International Low and FlexShares Quality Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Quality and Franklin International 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 International Low are associated (or correlated) with FlexShares Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Quality has no effect on the direction of Franklin International i.e., Franklin International and FlexShares Quality go up and down completely randomly.
Pair Corralation between Franklin International and FlexShares Quality
Given the investment horizon of 90 days Franklin International is expected to generate 1.16 times less return on investment than FlexShares Quality. But when comparing it to its historical volatility, Franklin International Low is 1.21 times less risky than FlexShares Quality. It trades about 0.11 of its potential returns per unit of risk. FlexShares Quality Dividend is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 5,764 in FlexShares Quality Dividend on August 29, 2024 and sell it today you would earn a total of 1,575 from holding FlexShares Quality Dividend or generate 27.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Franklin International Low vs. FlexShares Quality Dividend
Performance |
| Timeline |
| Franklin International |
| FlexShares Quality |
Franklin International and FlexShares Quality Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Franklin International and FlexShares Quality
The main advantage of trading using opposite Franklin International and FlexShares Quality positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin International position performs unexpectedly, FlexShares Quality 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 FlexShares Quality will offset losses from the drop in FlexShares Quality's long position.| Franklin International vs. Legg Mason Low | Franklin International vs. Xtrackers MSCI EAFE | Franklin International vs. Invesco SP SmallCap | Franklin International vs. WisdomTree International Hedged |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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