Correlation Between American High-income and Franklin High

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Can any of the company-specific risk be diversified away by investing in both American High-income and Franklin High 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 American High-income and Franklin High into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American High Income Municipal and Franklin High Yield, you can compare the effects of market volatilities on American High-income and Franklin High 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 American High-income with a short position of Franklin High. Check out your portfolio center. Please also check ongoing floating volatility patterns of American High-income and Franklin High.

Diversification Opportunities for American High-income and Franklin High

0.99
  Correlation Coefficient

No risk reduction

The 3 months correlation between American and Franklin is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding AMERICAN HIGH-INCOME MUNICIPAL and FRANKLIN HIGH YIELD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin High Yield and American High-income 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 American High Income Municipal are associated (or correlated) with Franklin High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin High Yield has no effect on the direction of American High-income i.e., American High-income and Franklin High go up and down completely randomly.

Pair Corralation between American High-income and Franklin High

Assuming the 90 days horizon American High-income is expected to generate 1.11 times less return on investment than Franklin High. In addition to that, American High-income is 1.0 times more volatile than Franklin High Yield. It trades about 0.25 of its total potential returns per unit of risk. Franklin High Yield is currently generating about 0.27 per unit of volatility. If you would invest  897.00  in Franklin High Yield on December 29, 2023 and sell it today you would earn a total of  8.00  from holding Franklin High Yield or generate 0.89% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

AMERICAN HIGH-INCOME MUNICIPAL  vs.  FRANKLIN HIGH YIELD

 Performance 
       Timeline  
American High-income 

Risk-Adjusted Performance

8 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in American High Income Municipal are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, American High-income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Franklin High Yield 

Risk-Adjusted Performance

8 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Franklin High Yield are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Franklin High is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American High-income and Franklin High Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with American High-income and Franklin High

The main advantage of trading using opposite American High-income and Franklin High positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American High-income position performs unexpectedly, Franklin High 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 High will offset losses from the drop in Franklin High's long position.
The idea behind American High Income Municipal and Franklin High Yield 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.
Check out your portfolio center.
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.

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