Correlation Between SPTSX Dividend and Franklin Large

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

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

Diversification Opportunities for SPTSX Dividend and Franklin Large

0.92

Correlation Coefficient

SPTSX Dividend  Franklin Large

Almost no diversification

The 3 months correlation between SPTSX and Franklin is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding SPTSX Dividend Aristocrats and Franklin Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Large Cap and SPTSX Dividend 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 SPTSX Dividend Aristocrats are associated (or correlated) with Franklin Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Large Cap has no effect on the direction of SPTSX Dividend i.e., SPTSX Dividend and Franklin Large go up and down completely randomly.

Pair Corralation between SPTSX Dividend and Franklin Large

Assuming the 90 days trading horizon SPTSX Dividend Aristocrats is expected to generate 0.65 times more return on investment than Franklin Large. However, SPTSX Dividend Aristocrats is 1.53 times less risky than Franklin Large. It trades about 0.26 of its potential returns per unit of risk. Franklin Large Cap is currently generating about 0.16 per unit of risk. If you would invest  31,360  in SPTSX Dividend Aristocrats on August 28, 2024 and sell it today you would earn a total of  6,050  from holding SPTSX Dividend Aristocrats or generate 19.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.43%
Values	Daily Returns

SPTSX Dividend Aristocrats  vs.  Franklin Large Cap

Pair Trading with SPTSX Dividend and Franklin Large

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

The idea behind SPTSX Dividend Aristocrats and Franklin Large Cap 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.