Correlation Between Franklin Strategic and Netflix

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

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

Diversification Opportunities for Franklin Strategic and Netflix

0.57

Correlation Coefficient

Franklin Strategic  Netflix

Very weak diversification

The 3 months correlation between Franklin and Netflix is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Strategic Mortgage and Netflix in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Netflix and Franklin Strategic 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 Strategic Mortgage are associated (or correlated) with Netflix. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Netflix has no effect on the direction of Franklin Strategic i.e., Franklin Strategic and Netflix go up and down completely randomly.

Pair Corralation between Franklin Strategic and Netflix

Assuming the 90 days horizon Franklin Strategic is expected to generate 7.83 times less return on investment than Netflix. But when comparing it to its historical volatility, Franklin Strategic Mortgage is 4.55 times less risky than Netflix. It trades about 0.23 of its potential returns per unit of risk. Netflix is currently generating about 0.4 of returns per unit of risk over similar time horizon. If you would invest  55,460  in Netflix on February 22, 2024 and sell it today you would earn a total of  9,601  from holding Netflix or generate 17.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

Franklin Strategic Mortgage  vs.  Netflix

Franklin Strategic

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Strategic Mortgage are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Franklin Strategic is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Netflix

Risk-Adjusted Performance

6 of 100

OK

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

Pair Trading with Franklin Strategic and Netflix

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

The idea behind Franklin Strategic Mortgage and Netflix 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.