Correlation Between Franklin Liberty and First Trust

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

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

Diversification Opportunities for Franklin Liberty and First Trust

0.95

Correlation Coefficient

Franklin Liberty  First Trust

Almost no diversification

The 3 months correlation between Franklin and First is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Liberty Senior and First Trust Senior in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Senior and Franklin Liberty 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 Liberty Senior are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Senior has no effect on the direction of Franklin Liberty i.e., Franklin Liberty and First Trust go up and down completely randomly.

Pair Corralation between Franklin Liberty and First Trust

Given the investment horizon of 90 days Franklin Liberty Senior is expected to generate 0.95 times more return on investment than First Trust. However, Franklin Liberty Senior is 1.06 times less risky than First Trust. It trades about 0.34 of its potential returns per unit of risk. First Trust Senior is currently generating about 0.31 per unit of risk. If you would invest  2,389  in Franklin Liberty Senior on September 2, 2024 and sell it today you would earn a total of  56.00  from holding Franklin Liberty Senior or generate 2.34% return on investment over 90 days.

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

Franklin Liberty Senior  vs.  First Trust Senior

Franklin Liberty Senior

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Liberty Senior are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, Franklin Liberty is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

First Trust Senior

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Senior are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, First Trust is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Franklin Liberty and First Trust

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

The idea behind Franklin Liberty Senior and First Trust Senior 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..