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 Federal and First Trust Municipal, 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

0.96

Correlation Coefficient

Franklin Liberty  First Trust

Almost no diversification

The 3 months correlation between Franklin and First is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Liberty Federal and First Trust Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Municipal 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 Federal 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 Municipal 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 Federal is expected to under-perform the First Trust. In addition to that, Franklin Liberty is 1.1 times more volatile than First Trust Municipal. It trades about -0.09 of its total potential returns per unit of risk. First Trust Municipal is currently generating about -0.09 per unit of volatility. If you would invest  4,891  in First Trust Municipal on September 30, 2024 and sell it today you would lose (88.00) from holding First Trust Municipal or give up 1.8% 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 Federal  vs.  First Trust Municipal

Franklin Liberty Federal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin Liberty Federal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, Franklin Liberty is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

First Trust Municipal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Municipal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical indicators, First Trust is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

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 Federal and First Trust Municipal 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.