Correlation Between Small Cap and Franklin Federal
Can any of the company-specific risk be diversified away by investing in both Small Cap and Franklin Federal 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 Federal 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 Federal Limited Term, you can compare the effects of market volatilities on Small Cap and Franklin Federal 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 Federal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Franklin Federal.
Diversification Opportunities for Small Cap and Franklin Federal
0.31 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Small and Franklin is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Franklin Federal Limited Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Federal Lim 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 Federal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Federal Lim has no effect on the direction of Small Cap i.e., Small Cap and Franklin Federal go up and down completely randomly.
Pair Corralation between Small Cap and Franklin Federal
Assuming the 90 days horizon Small Cap Stock is expected to generate 11.57 times more return on investment than Franklin Federal. However, Small Cap is 11.57 times more volatile than Franklin Federal Limited Term. It trades about 0.11 of its potential returns per unit of risk. Franklin Federal Limited Term is currently generating about 0.02 per unit of risk. If you would invest 1,434 in Small Cap Stock on August 31, 2024 and sell it today you would earn a total of 91.00 from holding Small Cap Stock or generate 6.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Stock vs. Franklin Federal Limited Term
Performance |
| Timeline |
| Small Cap Stock |
| Franklin Federal Lim |
Small Cap and Franklin Federal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Franklin Federal
The main advantage of trading using opposite Small Cap and Franklin Federal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Franklin Federal 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 Federal will offset losses from the drop in Franklin Federal's long position.The idea behind Small Cap Stock and Franklin Federal Limited Term pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Franklin Federal vs. Pro Blend Moderate Term | Franklin Federal vs. Wisdomtree Siegel Moderate | Franklin Federal vs. Blackrock Moderate Prepared | Franklin Federal vs. Lifestyle Ii Moderate |
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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