Correlation Between Small Cap and Franklin Lifesmart
Can any of the company-specific risk be diversified away by investing in both Small Cap and Franklin Lifesmart 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 Small Cap and Franklin Lifesmart into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Stock and Franklin Lifesmart 2020, you can compare the effects of market volatilities on Small Cap and Franklin Lifesmart 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 Small Cap with a short position of Franklin Lifesmart. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Franklin Lifesmart.
Diversification Opportunities for Small Cap and Franklin Lifesmart
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Small and Franklin is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Franklin Lifesmart 2020 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Lifesmart 2020 and Small Cap 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 Small Cap Stock are associated (or correlated) with Franklin Lifesmart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Lifesmart 2020 has no effect on the direction of Small Cap i.e., Small Cap and Franklin Lifesmart go up and down completely randomly.
Pair Corralation between Small Cap and Franklin Lifesmart
Assuming the 90 days horizon Small Cap Stock is expected to generate 3.3 times more return on investment than Franklin Lifesmart. However, Small Cap is 3.3 times more volatile than Franklin Lifesmart 2020. It trades about 0.08 of its potential returns per unit of risk. Franklin Lifesmart 2020 is currently generating about 0.1 per unit of risk. If you would invest 1,313 in Small Cap Stock on September 13, 2024 and sell it today you would earn a total of 184.00 from holding Small Cap Stock or generate 14.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.2% |
| Values | Daily Returns |
Small Cap Stock vs. Franklin Lifesmart 2020
Performance |
| Timeline |
| Small Cap Stock |
| Franklin Lifesmart 2020 |
Small Cap and Franklin Lifesmart Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Franklin Lifesmart
The main advantage of trading using opposite Small Cap and Franklin Lifesmart positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Franklin Lifesmart 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 Lifesmart will offset losses from the drop in Franklin Lifesmart's long position.| Small Cap vs. Goldman Sachs Real | Small Cap vs. Fidelity Real Estate | Small Cap vs. Redwood Real Estate | Small Cap vs. Vy Clarion Real |
| Franklin Lifesmart vs. Franklin Mutual Beacon | Franklin Lifesmart vs. Templeton Developing Markets | Franklin Lifesmart vs. Franklin Mutual Global | Franklin Lifesmart vs. Franklin Mutual Global |
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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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