Correlation Between Scharf Global and Franklin Small-mid

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Can any of the company-specific risk be diversified away by investing in both Scharf Global and Franklin Small-mid 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 Scharf Global and Franklin Small-mid into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Scharf Global Opportunity and Franklin Small Mid Cap, you can compare the effects of market volatilities on Scharf Global and Franklin Small-mid 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 Scharf Global with a short position of Franklin Small-mid. Check out your portfolio center. Please also check ongoing floating volatility patterns of Scharf Global and Franklin Small-mid.

Diversification Opportunities for Scharf Global and Franklin Small-mid

0.69
  Correlation Coefficient

Poor diversification

The 3 months correlation between Scharf and Franklin is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Scharf Global Opportunity and Franklin Small Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Small Mid and Scharf Global 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 Scharf Global Opportunity are associated (or correlated) with Franklin Small-mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Small Mid has no effect on the direction of Scharf Global i.e., Scharf Global and Franklin Small-mid go up and down completely randomly.

Pair Corralation between Scharf Global and Franklin Small-mid

Assuming the 90 days horizon Scharf Global is expected to generate 5.51 times less return on investment than Franklin Small-mid. But when comparing it to its historical volatility, Scharf Global Opportunity is 1.49 times less risky than Franklin Small-mid. It trades about 0.07 of its potential returns per unit of risk. Franklin Small Mid Cap is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  4,487  in Franklin Small Mid Cap on August 29, 2024 and sell it today you would earn a total of  481.00  from holding Franklin Small Mid Cap or generate 10.72% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Scharf Global Opportunity  vs.  Franklin Small Mid Cap

 Performance 
       Timeline  
Scharf Global Opportunity 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Scharf Global Opportunity are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Scharf Global is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Franklin Small Mid 

Risk-Adjusted Performance

18 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Small Mid Cap are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Franklin Small-mid showed solid returns over the last few months and may actually be approaching a breakup point.

Scharf Global and Franklin Small-mid Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Scharf Global and Franklin Small-mid

The main advantage of trading using opposite Scharf Global and Franklin Small-mid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Scharf Global position performs unexpectedly, Franklin Small-mid 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 Small-mid will offset losses from the drop in Franklin Small-mid's long position.
The idea behind Scharf Global Opportunity and Franklin Small Mid Cap 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.
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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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