Correlation Between Gamco Natural and Franklin Natural

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

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

Diversification Opportunities for Gamco Natural and Franklin Natural

0.39

Correlation Coefficient

Gamco Natural  Franklin Natural

Weak diversification

The 3 months correlation between Gamco and Franklin is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Gamco Natural Resources and Franklin Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Natural Res and Gamco Natural 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 Gamco Natural Resources are associated (or correlated) with Franklin Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Natural Res has no effect on the direction of Gamco Natural i.e., Gamco Natural and Franklin Natural go up and down completely randomly.

Pair Corralation between Gamco Natural and Franklin Natural

Assuming the 90 days horizon Gamco Natural is expected to generate 8.88 times less return on investment than Franklin Natural. But when comparing it to its historical volatility, Gamco Natural Resources is 1.34 times less risky than Franklin Natural. It trades about 0.01 of its potential returns per unit of risk. Franklin Natural Resources is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3,000  in Franklin Natural Resources on August 31, 2024 and sell it today you would earn a total of  159.00  from holding Franklin Natural Resources or generate 5.3% return on investment over 90 days.

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

Gamco Natural Resources  vs.  Franklin Natural Resources

Gamco Natural Resources

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Gamco Natural Resources are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Gamco Natural is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Franklin Natural Res

Risk-Adjusted Performance

7 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Natural Resources are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Franklin Natural is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Gamco Natural and Franklin Natural

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

The idea behind Gamco Natural Resources and Franklin Natural Resources 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.