Correlation Between American Funds and Franklin Real

Can any of the company-specific risk be diversified away by investing in both American Funds and Franklin Real 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 American Funds and Franklin Real into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American Funds Strategic and Franklin Real Estate, you can compare the effects of market volatilities on American Funds and Franklin Real 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 American Funds with a short position of Franklin Real. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Franklin Real.

Diversification Opportunities for American Funds and Franklin Real

0.53

Correlation Coefficient

American Funds  Franklin Real

Very weak diversification

The 3 months correlation between American and Franklin is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Strategic and Franklin Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Real Estate and American Funds 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 American Funds Strategic are associated (or correlated) with Franklin Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Real Estate has no effect on the direction of American Funds i.e., American Funds and Franklin Real go up and down completely randomly.

Pair Corralation between American Funds and Franklin Real

Assuming the 90 days horizon American Funds Strategic is expected to under-perform the Franklin Real. But the mutual fund apears to be less risky and, when comparing its historical volatility, American Funds Strategic is 2.8 times less risky than Franklin Real. The mutual fund trades about -0.13 of its potential returns per unit of risk. The Franklin Real Estate is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  1,973  in Franklin Real Estate on September 12, 2024 and sell it today you would lose (30.00) from holding Franklin Real Estate or give up 1.52% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

American Funds Strategic  vs.  Franklin Real Estate

American Funds Strategic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Funds Strategic has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Franklin Real Estate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin Real Estate has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Franklin Real is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with American Funds and Franklin Real

The main advantage of trading using opposite American Funds and Franklin Real positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Franklin Real 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 Real will offset losses from the drop in Franklin Real's long position.

The idea behind American Funds Strategic and Franklin Real Estate 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.