Correlation Between US Treasury and Franklin Liberty

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

By analyzing existing cross correlation between US Treasury 6 and Franklin Liberty Short, you can compare the effects of market volatilities on US Treasury and Franklin Liberty 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 US Treasury with a short position of Franklin Liberty. Check out your portfolio center. Please also check ongoing floating volatility patterns of US Treasury and Franklin Liberty.

Diversification Opportunities for US Treasury and Franklin Liberty

0.67

Correlation Coefficient

US Treasury  Franklin Liberty

Poor diversification

The 3 months correlation between XBIL and Franklin is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding US Treasury 6 and Franklin Liberty Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Liberty Short and US Treasury 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 US Treasury 6 are associated (or correlated) with Franklin Liberty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Liberty Short has no effect on the direction of US Treasury i.e., US Treasury and Franklin Liberty go up and down completely randomly.

Pair Corralation between US Treasury and Franklin Liberty

Given the investment horizon of 90 days US Treasury 6 is expected to generate 0.37 times more return on investment than Franklin Liberty. However, US Treasury 6 is 2.69 times less risky than Franklin Liberty. It trades about 0.68 of its potential returns per unit of risk. Franklin Liberty Short is currently generating about 0.21 per unit of risk. If you would invest  4,960  in US Treasury 6 on August 30, 2024 and sell it today you would earn a total of  56.00  from holding US Treasury 6 or generate 1.13% return on investment over 90 days.

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

US Treasury 6  vs.  Franklin Liberty Short

US Treasury 6

Risk-Adjusted Performance

53 of 100

Excellent

Compared to the overall equity markets, risk-adjusted returns on investments in US Treasury 6 are ranked lower than 53 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward indicators, US Treasury is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Franklin Liberty Short

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Liberty Short are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Franklin Liberty is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with US Treasury and Franklin Liberty

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

The idea behind US Treasury 6 and Franklin Liberty Short 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.