Correlation Between Technology Select and Franklin Templeton

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

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

Diversification Opportunities for Technology Select and Franklin Templeton

0.95

Correlation Coefficient

Technology Select  Franklin Templeton

Almost no diversification

The 3 months correlation between Technology and Franklin is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Technology Select Sector and Franklin Templeton ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Templeton ETF and Technology Select 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 Technology Select Sector 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 ETF has no effect on the direction of Technology Select i.e., Technology Select and Franklin Templeton go up and down completely randomly.

Pair Corralation between Technology Select and Franklin Templeton

Considering the 90-day investment horizon Technology Select is expected to generate 1.37 times less return on investment than Franklin Templeton. But when comparing it to its historical volatility, Technology Select Sector is 1.11 times less risky than Franklin Templeton. It trades about 0.07 of its potential returns per unit of risk. Franklin Templeton ETF is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  6,203  in Franklin Templeton ETF on August 30, 2024 and sell it today you would earn a total of  452.00  from holding Franklin Templeton ETF or generate 7.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Technology Select Sector  vs.  Franklin Templeton ETF

Technology Select Sector

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Technology Select Sector are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, Technology Select is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Franklin Templeton ETF

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Templeton ETF are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Franklin Templeton may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Technology Select and Franklin Templeton

The main advantage of trading using opposite Technology Select and Franklin Templeton positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Technology Select 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 Technology Select Sector and Franklin Templeton ETF 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.