Correlation Between Extended Market and Franklin Natural
Can any of the company-specific risk be diversified away by investing in both Extended Market and Franklin Natural 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 Extended Market and Franklin Natural into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Extended Market Index and Franklin Natural Resources, you can compare the effects of market volatilities on Extended Market and Franklin Natural 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 Extended Market with a short position of Franklin Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Extended Market and Franklin Natural.
Diversification Opportunities for Extended Market and Franklin Natural
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Extended and Franklin is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Extended Market Index and Franklin Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Natural Res and Extended Market 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 Extended Market Index are associated (or correlated) with Franklin Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Natural Res has no effect on the direction of Extended Market i.e., Extended Market and Franklin Natural go up and down completely randomly.
Pair Corralation between Extended Market and Franklin Natural
Assuming the 90 days horizon Extended Market is expected to generate 1.7 times less return on investment than Franklin Natural. In addition to that, Extended Market is 1.06 times more volatile than Franklin Natural Resources. It trades about 0.21 of its total potential returns per unit of risk. Franklin Natural Resources is currently generating about 0.38 per unit of volatility. If you would invest 2,825 in Franklin Natural Resources on October 30, 2024 and sell it today you would earn a total of 163.00 from holding Franklin Natural Resources or generate 5.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Extended Market Index vs. Franklin Natural Resources
Performance |
| Timeline |
| Extended Market Index |
| Franklin Natural Res |
Extended Market and Franklin Natural Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Extended Market and Franklin Natural
The main advantage of trading using opposite Extended Market and Franklin Natural positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Extended Market position performs unexpectedly, Franklin Natural 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 Natural will offset losses from the drop in Franklin Natural's long position.| Extended Market vs. T Rowe Price | Extended Market vs. Ab Bond Inflation | Extended Market vs. Franklin Government Money | Extended Market vs. Old Westbury Municipal |
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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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