Correlation Between Deutsche E and Franklin Natural

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

By analyzing existing cross correlation between Deutsche E Equity and Franklin Natural Resources, you can compare the effects of market volatilities on Deutsche E and Franklin Natural 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 Deutsche E with a short position of Franklin Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deutsche E and Franklin Natural.

Diversification Opportunities for Deutsche E and Franklin Natural

0.64

Correlation Coefficient

Deutsche E  Franklin Natural

Poor diversification

The 3 months correlation between Deutsche and Franklin is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Deutsche E Equity and Franklin Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Natural Res and Deutsche E 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 Deutsche E Equity are associated (or correlated) with Franklin Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Natural Res has no effect on the direction of Deutsche E i.e., Deutsche E and Franklin Natural go up and down completely randomly.

Pair Corralation between Deutsche E and Franklin Natural

Assuming the 90 days horizon Deutsche E Equity is expected to generate 0.79 times more return on investment than Franklin Natural. However, Deutsche E Equity is 1.27 times less risky than Franklin Natural. It trades about 0.16 of its potential returns per unit of risk. Franklin Natural Resources is currently generating about 0.06 per unit of risk. If you would invest  3,591  in Deutsche E Equity on September 13, 2024 and sell it today you would earn a total of  264.00  from holding Deutsche E Equity or generate 7.35% return on investment over 90 days.

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

Deutsche E Equity  vs.  Franklin Natural Resources

Deutsche E Equity

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Deutsche E Equity are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Deutsche E may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Franklin Natural Res

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Natural Resources are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Franklin Natural is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Deutsche E and Franklin Natural

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

The idea behind Deutsche E Equity and Franklin Natural Resources 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.