Correlation Between Franklin Utilities and Vanguard Utilities

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

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

Diversification Opportunities for Franklin Utilities and Vanguard Utilities

0.93

Correlation Coefficient

Franklin Utilities  Vanguard Utilities

Almost no diversification

The 3 months correlation between Franklin and Vanguard is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Utilities Fund and Vanguard Utilities Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Utilities Index and Franklin Utilities 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 Utilities Fund are associated (or correlated) with Vanguard Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Utilities Index has no effect on the direction of Franklin Utilities i.e., Franklin Utilities and Vanguard Utilities go up and down completely randomly.

Pair Corralation between Franklin Utilities and Vanguard Utilities

Assuming the 90 days horizon Franklin Utilities Fund is expected to generate 0.92 times more return on investment than Vanguard Utilities. However, Franklin Utilities Fund is 1.09 times less risky than Vanguard Utilities. It trades about 0.18 of its potential returns per unit of risk. Vanguard Utilities Index is currently generating about 0.15 per unit of risk. If you would invest  2,330  in Franklin Utilities Fund on August 31, 2024 and sell it today you would earn a total of  250.00  from holding Franklin Utilities Fund or generate 10.73% return on investment over 90 days.

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

Franklin Utilities Fund  vs.  Vanguard Utilities Index

Franklin Utilities

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Utilities Fund are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Franklin Utilities may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Vanguard Utilities Index

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Utilities Index are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Utilities may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Franklin Utilities and Vanguard Utilities

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

The idea behind Franklin Utilities Fund and Vanguard Utilities Index 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.