Correlation Between Franklin Convertible and Franklin Utilities

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

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

Diversification Opportunities for Franklin Convertible and Franklin Utilities

0.85

Correlation Coefficient

Franklin Convertible  Franklin Utilities

Very poor diversification

The 3 months correlation between Franklin and Franklin is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Vertible Securities and Franklin Utilities Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Utilities and Franklin Convertible 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 Vertible Securities are associated (or correlated) with Franklin Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Utilities has no effect on the direction of Franklin Convertible i.e., Franklin Convertible and Franklin Utilities go up and down completely randomly.

Pair Corralation between Franklin Convertible and Franklin Utilities

Assuming the 90 days horizon Franklin Vertible Securities is expected to generate 0.52 times more return on investment than Franklin Utilities. However, Franklin Vertible Securities is 1.92 times less risky than Franklin Utilities. It trades about 0.41 of its potential returns per unit of risk. Franklin Utilities Fund is currently generating about 0.18 per unit of risk. If you would invest  2,178  in Franklin Vertible Securities on September 2, 2024 and sell it today you would earn a total of  284.00  from holding Franklin Vertible Securities or generate 13.04% return on investment over 90 days.

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

Franklin Vertible Securities  vs.  Franklin Utilities Fund

Franklin Convertible

Risk-Adjusted Performance

32 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Vertible Securities are ranked lower than 32 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Franklin Convertible may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Franklin Utilities

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Utilities Fund are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Franklin Utilities may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Franklin Convertible and Franklin Utilities

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

The idea behind Franklin Vertible Securities and Franklin Utilities 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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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.