Correlation Between First Trust and Franklin Liberty

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

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

Diversification Opportunities for First Trust and Franklin Liberty

0.88

Correlation Coefficient

First Trust  Franklin Liberty

Very poor diversification

The 3 months correlation between First and Franklin is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Municipal and Franklin Liberty Intermediate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Liberty Int and First Trust 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 First Trust Municipal are associated (or correlated) with Franklin Liberty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Liberty Int has no effect on the direction of First Trust i.e., First Trust and Franklin Liberty go up and down completely randomly.

Pair Corralation between First Trust and Franklin Liberty

Given the investment horizon of 90 days First Trust is expected to generate 1.22 times less return on investment than Franklin Liberty. But when comparing it to its historical volatility, First Trust Municipal is 1.05 times less risky than Franklin Liberty. It trades about 0.06 of its potential returns per unit of risk. Franklin Liberty Intermediate is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,453  in Franklin Liberty Intermediate on August 30, 2024 and sell it today you would earn a total of  31.00  from holding Franklin Liberty Intermediate or generate 1.26% return on investment over 90 days.

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

First Trust Municipal  vs.  Franklin Liberty Intermediate

First Trust Municipal

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Municipal are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

Franklin Liberty Int

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Liberty Intermediate are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong primary indicators, Franklin Liberty is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with First Trust and Franklin Liberty

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

The idea behind First Trust Municipal and Franklin Liberty Intermediate 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.