Correlation Between Franklin Liberty and US Treasury

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

By analyzing existing cross correlation between Franklin Liberty Treasury and US Treasury 5, you can compare the effects of market volatilities on Franklin Liberty and US Treasury 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 US Treasury. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Liberty and US Treasury.

Diversification Opportunities for Franklin Liberty and US Treasury

0.99

Correlation Coefficient

Franklin Liberty  US Treasury

No risk reduction

The 3 months correlation between Franklin and UFIV is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Liberty Treasury and US Treasury 5 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Treasury 5 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 Treasury are associated (or correlated) with US Treasury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Treasury 5 has no effect on the direction of Franklin Liberty i.e., Franklin Liberty and US Treasury go up and down completely randomly.

Pair Corralation between Franklin Liberty and US Treasury

Given the investment horizon of 90 days Franklin Liberty Treasury is expected to under-perform the US Treasury. In addition to that, Franklin Liberty is 1.27 times more volatile than US Treasury 5. It trades about -0.12 of its total potential returns per unit of risk. US Treasury 5 is currently generating about -0.13 per unit of volatility. If you would invest  4,941  in US Treasury 5 on September 12, 2024 and sell it today you would lose (96.00) from holding US Treasury 5 or give up 1.94% of portfolio value over 90 days.

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

Franklin Liberty Treasury  vs.  US Treasury 5

Franklin Liberty Treasury

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin Liberty Treasury has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental indicators, Franklin Liberty is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

US Treasury 5

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days US Treasury 5 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable forward indicators, US Treasury is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Franklin Liberty and US Treasury

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

The idea behind Franklin Liberty Treasury and US Treasury 5 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.