Correlation Between Franklin Lifesmart and Stock Index
Can any of the company-specific risk be diversified away by investing in both Franklin Lifesmart and Stock Index 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 Stock Index into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Franklin Lifesmart 2050 and Stock Index Fund, you can compare the effects of market volatilities on Franklin Lifesmart and Stock Index 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 Stock Index. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Lifesmart and Stock Index.
Diversification Opportunities for Franklin Lifesmart and Stock Index
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Franklin and Stock is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Lifesmart 2050 and Stock Index Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stock Index Fund 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 2050 are associated (or correlated) with Stock Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stock Index Fund has no effect on the direction of Franklin Lifesmart i.e., Franklin Lifesmart and Stock Index go up and down completely randomly.
Pair Corralation between Franklin Lifesmart and Stock Index
Assuming the 90 days horizon Franklin Lifesmart is expected to generate 1.77 times less return on investment than Stock Index. But when comparing it to its historical volatility, Franklin Lifesmart 2050 is 1.37 times less risky than Stock Index. It trades about 0.26 of its potential returns per unit of risk. Stock Index Fund is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest 5,839 in Stock Index Fund on September 6, 2024 and sell it today you would earn a total of 304.00 from holding Stock Index Fund or generate 5.21% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Franklin Lifesmart 2050 vs. Stock Index Fund
Performance |
Timeline |
Franklin Lifesmart 2050 |
Stock Index Fund |
Franklin Lifesmart and Stock Index Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Franklin Lifesmart and Stock Index
The main advantage of trading using opposite Franklin Lifesmart and Stock Index positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin Lifesmart position performs unexpectedly, Stock Index 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 Stock Index will offset losses from the drop in Stock Index's long position.Franklin Lifesmart vs. Vanguard Target Retirement | Franklin Lifesmart vs. American Funds 2050 | Franklin Lifesmart vs. Fidelity Freedom 2050 | Franklin Lifesmart vs. Fidelity Freedom Index |
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Check out your portfolio center.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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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