Correlation Between Franklin Resources and Ormat Technologies

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

Diversification Opportunities for Franklin Resources and Ormat Technologies

0.46
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Franklin and Ormat is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Resources and Ormat Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ormat Technologies and Franklin Resources 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 Resources are associated (or correlated) with Ormat Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ormat Technologies has no effect on the direction of Franklin Resources i.e., Franklin Resources and Ormat Technologies go up and down completely randomly.

Pair Corralation between Franklin Resources and Ormat Technologies

Considering the 90-day investment horizon Franklin Resources is expected to generate 2.77 times less return on investment than Ormat Technologies. But when comparing it to its historical volatility, Franklin Resources is 1.34 times less risky than Ormat Technologies. It trades about 0.07 of its potential returns per unit of risk. Ormat Technologies is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,315,812  in Ormat Technologies on December 29, 2023 and sell it today you would earn a total of  104,188  from holding Ormat Technologies or generate 4.5% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy77.27%
ValuesDaily Returns

Franklin Resources  vs.  Ormat Technologies

 Performance 
       Timeline  
Franklin Resources 

Risk-Adjusted Performance

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

Risk-Adjusted Performance

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Low
 
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Very Weak
Over the last 90 days Ormat Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Franklin Resources and Ormat Technologies Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Franklin Resources and Ormat Technologies

The main advantage of trading using opposite Franklin Resources and Ormat Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin Resources position performs unexpectedly, Ormat Technologies 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 Ormat Technologies will offset losses from the drop in Ormat Technologies' long position.
The idea behind Franklin Resources and Ormat Technologies 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 Transaction History module to view history of all your transactions and understand their impact on performance.

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