Correlation Between Franklin Mutual and American Funds

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

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

Diversification Opportunities for Franklin Mutual and American Funds

0.49

Correlation Coefficient

Franklin Mutual  American Funds

Very weak diversification

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

Pair Corralation between Franklin Mutual and American Funds

Assuming the 90 days horizon Franklin Mutual is expected to generate 1.98 times less return on investment than American Funds. But when comparing it to its historical volatility, Franklin Mutual Global is 1.25 times less risky than American Funds. It trades about 0.03 of its potential returns per unit of risk. American Funds Developing is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,054  in American Funds Developing on September 4, 2024 and sell it today you would earn a total of  27.00  from holding American Funds Developing or generate 2.56% return on investment over 90 days.

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

Franklin Mutual Global  vs.  American Funds Developing

Franklin Mutual Global

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Mutual Global are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Franklin Mutual is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Funds Developing

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pair Trading with Franklin Mutual and American Funds

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

The idea behind Franklin Mutual Global and American Funds Developing 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.