Correlation Between Franklin Small and Long-term
Can any of the company-specific risk be diversified away by investing in both Franklin Small and Long-term 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 Small and Long-term into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Franklin Small Cap and Long Term Government Fund, you can compare the effects of market volatilities on Franklin Small and Long-term 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 Small with a short position of Long-term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Small and Long-term.
Diversification Opportunities for Franklin Small and Long-term
-0.31 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Franklin and Long-term is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Small Cap and Long Term Government Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Long Term Government and Franklin Small 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 Small Cap are associated (or correlated) with Long-term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Long Term Government has no effect on the direction of Franklin Small i.e., Franklin Small and Long-term go up and down completely randomly.
Pair Corralation between Franklin Small and Long-term
Assuming the 90 days horizon Franklin Small Cap is expected to generate 2.45 times more return on investment than Long-term. However, Franklin Small is 2.45 times more volatile than Long Term Government Fund. It trades about 0.07 of its potential returns per unit of risk. Long Term Government Fund is currently generating about -0.04 per unit of risk. If you would invest 1,375 in Franklin Small Cap on March 29, 2025 and sell it today you would earn a total of 117.00 from holding Franklin Small Cap or generate 8.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 98.39% |
| Values | Daily Returns |
Franklin Small Cap vs. Long Term Government Fund
Performance |
| Timeline |
| Franklin Small Cap |
| Long Term Government |
Franklin Small and Long-term Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Franklin Small and Long-term
The main advantage of trading using opposite Franklin Small and Long-term positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin Small position performs unexpectedly, Long-term 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 Long-term will offset losses from the drop in Long-term's long position.The idea behind Franklin Small Cap and Long Term Government Fund 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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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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