Correlation Between Davis Financial and Franklin Founding

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

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

Diversification Opportunities for Davis Financial and Franklin Founding

0.49

Correlation Coefficient

Davis Financial  Franklin Founding

Very weak diversification

The 3 months correlation between Davis and Franklin is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Davis Financial Fund and Franklin Founding Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Founding Funds and Davis Financial 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 Davis Financial Fund are associated (or correlated) with Franklin Founding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Founding Funds has no effect on the direction of Davis Financial i.e., Davis Financial and Franklin Founding go up and down completely randomly.

Pair Corralation between Davis Financial and Franklin Founding

Assuming the 90 days horizon Davis Financial Fund is expected to generate 2.93 times more return on investment than Franklin Founding. However, Davis Financial is 2.93 times more volatile than Franklin Founding Funds. It trades about 0.09 of its potential returns per unit of risk. Franklin Founding Funds is currently generating about 0.09 per unit of risk. If you would invest  6,113  in Davis Financial Fund on September 15, 2024 and sell it today you would earn a total of  436.00  from holding Davis Financial Fund or generate 7.13% return on investment over 90 days.

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

Davis Financial Fund  vs.  Franklin Founding Funds

Davis Financial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Financial Fund are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Davis Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Franklin Founding Funds

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Founding Funds are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Franklin Founding is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Davis Financial and Franklin Founding

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

The idea behind Davis Financial Fund and Franklin Founding Funds 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.