Correlation Between IShares 5 and Franklin Liberty

Can any of the company-specific risk be diversified away by investing in both IShares 5 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 IShares 5 and Franklin Liberty into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between iShares 5 10 Year and Franklin Liberty Investment, you can compare the effects of market volatilities on IShares 5 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 IShares 5 with a short position of Franklin Liberty. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares 5 and Franklin Liberty.

Diversification Opportunities for IShares 5 and Franklin Liberty

0.86

Correlation Coefficient

IShares 5  Franklin Liberty

Very poor diversification

The 3 months correlation between IShares and Franklin is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding iShares 5 10 Year and Franklin Liberty Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Liberty Inv and IShares 5 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 iShares 5 10 Year 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 Inv has no effect on the direction of IShares 5 i.e., IShares 5 and Franklin Liberty go up and down completely randomly.

Pair Corralation between IShares 5 and Franklin Liberty

Given the investment horizon of 90 days iShares 5 10 Year is expected to generate 0.88 times more return on investment than Franklin Liberty. However, iShares 5 10 Year is 1.14 times less risky than Franklin Liberty. It trades about 0.02 of its potential returns per unit of risk. Franklin Liberty Investment is currently generating about -0.01 per unit of risk. If you would invest  5,071  in iShares 5 10 Year on February 7, 2024 and sell it today you would earn a total of  11.00  from holding iShares 5 10 Year or generate 0.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

iShares 5 10 Year  vs.  Franklin Liberty Investment

iShares 5 10

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares 5 10 Year has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward indicators, IShares 5 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Franklin Liberty Inv

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin Liberty Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Franklin Liberty is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares 5 and Franklin Liberty

The main advantage of trading using opposite IShares 5 and Franklin Liberty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares 5 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 iShares 5 10 Year and Franklin Liberty Investment 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.