Correlation Between Western Asset and Franklin Templeton

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

By analyzing existing cross correlation between Western Asset Total and Franklin Templeton Smacs, you can compare the effects of market volatilities on Western Asset and Franklin Templeton 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 Western Asset with a short position of Franklin Templeton. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Asset and Franklin Templeton.

Diversification Opportunities for Western Asset and Franklin Templeton

0.74

Correlation Coefficient

Western Asset  Franklin Templeton

Poor diversification

The 3 months correlation between Western and Franklin is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Total and Franklin Templeton Smacs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Templeton Smacs and Western Asset 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 Western Asset Total are associated (or correlated) with Franklin Templeton. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Templeton Smacs has no effect on the direction of Western Asset i.e., Western Asset and Franklin Templeton go up and down completely randomly.

Pair Corralation between Western Asset and Franklin Templeton

Assuming the 90 days horizon Western Asset Total is expected to under-perform the Franklin Templeton. In addition to that, Western Asset is 1.13 times more volatile than Franklin Templeton Smacs. It trades about -0.29 of its total potential returns per unit of risk. Franklin Templeton Smacs is currently generating about -0.24 per unit of volatility. If you would invest  946.00  in Franklin Templeton Smacs on September 27, 2024 and sell it today you would lose (15.00) from holding Franklin Templeton Smacs or give up 1.59% of portfolio value over 90 days.

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

Western Asset Total  vs.  Franklin Templeton Smacs

Western Asset Total

Risk-Adjusted Performance

0 of 100

Very Weak

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

Franklin Templeton Smacs

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Western Asset and Franklin Templeton

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

The idea behind Western Asset Total and Franklin Templeton Smacs 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.