Correlation Between Vanguard Health and Franklin Income

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

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

Diversification Opportunities for Vanguard Health and Franklin Income

0.8

Correlation Coefficient

Vanguard Health  Franklin Income

Very poor diversification

The 3 months correlation between Vanguard and Franklin is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Health Care and Franklin Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Income and Vanguard Health 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 Vanguard Health Care are associated (or correlated) with Franklin Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Income has no effect on the direction of Vanguard Health i.e., Vanguard Health and Franklin Income go up and down completely randomly.

Pair Corralation between Vanguard Health and Franklin Income

Assuming the 90 days horizon Vanguard Health Care is expected to under-perform the Franklin Income. In addition to that, Vanguard Health is 4.24 times more volatile than Franklin Income Fund. It trades about -0.24 of its total potential returns per unit of risk. Franklin Income Fund is currently generating about -0.14 per unit of volatility. If you would invest  242.00  in Franklin Income Fund on September 27, 2024 and sell it today you would lose (7.00) from holding Franklin Income Fund or give up 2.89% of portfolio value over 90 days.

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

Vanguard Health Care  vs.  Franklin Income Fund

Vanguard Health Care

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Health Care 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 fundamental 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 Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin Income Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Franklin Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Health and Franklin Income

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

The idea behind Vanguard Health Care and Franklin Income Fund 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.