Correlation Between International Equity and Franklin Small

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

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

Diversification Opportunities for International Equity and Franklin Small

-0.33

Correlation Coefficient

International Equity  Franklin Small

Very good diversification

The 3 months correlation between International and Franklin is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Series and Franklin Small Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Small Mid and International Equity 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 International Equity Series are associated (or correlated) with Franklin Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Small Mid has no effect on the direction of International Equity i.e., International Equity and Franklin Small go up and down completely randomly.

Pair Corralation between International Equity and Franklin Small

Assuming the 90 days horizon International Equity Series is expected to under-perform the Franklin Small. In addition to that, International Equity is 1.76 times more volatile than Franklin Small Mid Cap. It trades about -0.18 of its total potential returns per unit of risk. Franklin Small Mid Cap is currently generating about 0.1 per unit of volatility. If you would invest  4,480  in Franklin Small Mid Cap on September 26, 2024 and sell it today you would earn a total of  296.00  from holding Franklin Small Mid Cap or generate 6.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

International Equity Series  vs.  Franklin Small Mid Cap

International Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Equity Series 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 basic 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.

Franklin Small Mid

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Small Mid Cap are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Franklin Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with International Equity and Franklin Small

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

The idea behind International Equity Series and Franklin Small Mid Cap 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.

Check out your portfolio center.

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.