Correlation Between Franklin Lifesmart and Transamerica Financial

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

By analyzing existing cross correlation between Franklin Lifesmart 2040 and Transamerica Financial Life, you can compare the effects of market volatilities on Franklin Lifesmart and Transamerica Financial 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 Lifesmart with a short position of Transamerica Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Lifesmart and Transamerica Financial.

Diversification Opportunities for Franklin Lifesmart and Transamerica Financial

0.68

Correlation Coefficient

Franklin Lifesmart  Transamerica Financial

Poor diversification

The 3 months correlation between Franklin and Transamerica is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Lifesmart 2040 and Transamerica Financial Life in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Financial and Franklin Lifesmart 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 Lifesmart 2040 are associated (or correlated) with Transamerica Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica Financial has no effect on the direction of Franklin Lifesmart i.e., Franklin Lifesmart and Transamerica Financial go up and down completely randomly.

Pair Corralation between Franklin Lifesmart and Transamerica Financial

Assuming the 90 days horizon Franklin Lifesmart 2040 is expected to generate 0.72 times more return on investment than Transamerica Financial. However, Franklin Lifesmart 2040 is 1.39 times less risky than Transamerica Financial. It trades about 0.04 of its potential returns per unit of risk. Transamerica Financial Life is currently generating about 0.0 per unit of risk. If you would invest  1,451  in Franklin Lifesmart 2040 on September 19, 2024 and sell it today you would earn a total of  15.00  from holding Franklin Lifesmart 2040 or generate 1.03% return on investment over 90 days.

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

Franklin Lifesmart 2040  vs.  Transamerica Financial Life

Franklin Lifesmart 2040

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Lifesmart 2040 are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, Franklin Lifesmart is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Transamerica Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transamerica Financial Life has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Transamerica Financial 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 Lifesmart and Transamerica Financial

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

The idea behind Franklin Lifesmart 2040 and Transamerica Financial Life 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.