Correlation Between MF Bancorp and Franklin Financial

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

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

Diversification Opportunities for MF Bancorp and Franklin Financial

0.74

Correlation Coefficient

MF Bancorp  Franklin Financial

Poor diversification

The 3 months correlation between MFBP and Franklin is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding MF Bancorp and Franklin Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Financial and MF Bancorp 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 MF Bancorp are associated (or correlated) with Franklin Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Financial has no effect on the direction of MF Bancorp i.e., MF Bancorp and Franklin Financial go up and down completely randomly.

Pair Corralation between MF Bancorp and Franklin Financial

Given the investment horizon of 90 days MF Bancorp is expected to under-perform the Franklin Financial. In addition to that, MF Bancorp is 1.65 times more volatile than Franklin Financial Services. It trades about -0.08 of its total potential returns per unit of risk. Franklin Financial Services is currently generating about 0.0 per unit of volatility. If you would invest  3,191  in Franklin Financial Services on January 29, 2024 and sell it today you would lose (151.00) from holding Franklin Financial Services or give up 4.73% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	92.58%
Values	Daily Returns

MF Bancorp  vs.  Franklin Financial Services

MF Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MF Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with uncertain performance in the last few months, the Stock's fundamental drivers remain relatively invariable which may send shares a bit higher in May 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Franklin Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin Financial Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with MF Bancorp and Franklin Financial

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

The idea behind MF Bancorp and Franklin Financial Services 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.