Correlation Between Franklin Adjustable and Meridian Equity

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

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

Diversification Opportunities for Franklin Adjustable and Meridian Equity

-0.3

Correlation Coefficient

Franklin Adjustable  Meridian Equity

Very good diversification

The 3 months correlation between Franklin and Meridian is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Adjustable Government and Meridian Equity Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meridian Equity Income and Franklin Adjustable 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 Adjustable Government are associated (or correlated) with Meridian Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meridian Equity Income has no effect on the direction of Franklin Adjustable i.e., Franklin Adjustable and Meridian Equity go up and down completely randomly.

Pair Corralation between Franklin Adjustable and Meridian Equity

Assuming the 90 days horizon Franklin Adjustable is expected to generate 2.85 times less return on investment than Meridian Equity. But when comparing it to its historical volatility, Franklin Adjustable Government is 5.11 times less risky than Meridian Equity. It trades about 0.17 of its potential returns per unit of risk. Meridian Equity Income is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,339  in Meridian Equity Income on September 12, 2024 and sell it today you would earn a total of  195.00  from holding Meridian Equity Income or generate 14.56% return on investment over 90 days.

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

Franklin Adjustable Government  vs.  Meridian Equity Income

Franklin Adjustable

Risk-Adjusted Performance

0 of 100

Very Weak

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

Meridian Equity Income

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Meridian Equity Income are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Meridian Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Franklin Adjustable and Meridian Equity

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

The idea behind Franklin Adjustable Government and Meridian Equity Income 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.