Correlation Between American Express and Franklin Resources

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

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

Diversification Opportunities for American Express and Franklin Resources

0.9

Correlation Coefficient

American Express  Franklin Resources

Almost no diversification

The 3 months correlation between American and Franklin is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Franklin Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Resources and American Express 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 Express are associated (or correlated) with Franklin Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Resources has no effect on the direction of American Express i.e., American Express and Franklin Resources go up and down completely randomly.

Pair Corralation between American Express and Franklin Resources

Considering the 90-day investment horizon American Express is expected to generate 1.12 times more return on investment than Franklin Resources. However, American Express is 1.12 times more volatile than Franklin Resources. It trades about 0.16 of its potential returns per unit of risk. Franklin Resources is currently generating about 0.14 per unit of risk. If you would invest  25,798  in American Express on August 30, 2024 and sell it today you would earn a total of  4,627  from holding American Express or generate 17.94% return on investment over 90 days.

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

American Express  vs.  Franklin Resources

American Express

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, American Express reported solid returns over the last few months and may actually be approaching a breakup point.

Franklin Resources

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Resources are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting technical and fundamental indicators, Franklin Resources displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Express and Franklin Resources

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

The idea behind American Express and Franklin Resources 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.