Correlation Between Franklin Income and Vanguard Health

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

By analyzing existing cross correlation between Franklin Income Fund and Vanguard Health Care, you can compare the effects of market volatilities on Franklin Income and Vanguard Health 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 Income with a short position of Vanguard Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Income and Vanguard Health.

Diversification Opportunities for Franklin Income and Vanguard Health

0.78

Correlation Coefficient

Franklin Income  Vanguard Health

Poor diversification

The 3 months correlation between Franklin and Vanguard is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Income Fund and Vanguard Health Care in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Health Care and Franklin Income 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 Income Fund are associated (or correlated) with Vanguard Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Health Care has no effect on the direction of Franklin Income i.e., Franklin Income and Vanguard Health go up and down completely randomly.

Pair Corralation between Franklin Income and Vanguard Health

Assuming the 90 days horizon Franklin Income Fund is expected to generate 0.24 times more return on investment than Vanguard Health. However, Franklin Income Fund is 4.16 times less risky than Vanguard Health. It trades about -0.12 of its potential returns per unit of risk. Vanguard Health Care is currently generating about -0.25 per unit of risk. If you would invest  241.00  in Franklin Income Fund on September 26, 2024 and sell it today you would lose (6.00) from holding Franklin Income Fund or give up 2.49% of portfolio value over 90 days.

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

Franklin Income Fund  vs.  Vanguard Health Care

Franklin Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin Income Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Franklin Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Health Care

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Health Care has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Franklin Income and Vanguard Health

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

The idea behind Franklin Income Fund and Vanguard Health Care 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.