Can any of the company-specific risk be diversified away by investing in both Franklin Resources and Dover 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 Franklin Resources and Dover into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Franklin Resources and Dover, you can compare the effects of market volatilities on Franklin Resources and Dover 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 Franklin Resources with a short position of Dover. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Resources and Dover.
Diversification Opportunities for Franklin Resources and Dover
The 3 months correlation between Franklin and Dover is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Resources and Dover in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dover and Franklin Resources 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 Franklin Resources are associated (or correlated) with Dover. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dover has no effect on the direction of Franklin Resources i.e., Franklin Resources and Dover go up and down completely randomly.
Pair Corralation between Franklin Resources and Dover
Considering the 90-day investment horizon Franklin Resources is expected to under-perform the Dover. In addition to that, Franklin Resources is 1.7 times more volatile than Dover. It trades about -0.19 of its total potential returns per unit of risk. Dover is currently generating about 0.08 per unit of volatility. If you would invest 17,535 in Dover on March 6, 2024 and sell it today you would earn a total of 594.00 from holding Dover or generate 3.39% return on investment over 90 days.
Over the last 90 days Franklin Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in July 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.
Compared to the overall equity markets, risk-adjusted returns on investments in Dover are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Dover may actually be approaching a critical reversion point that can send shares even higher in July 2024.