Correlation Between Franklin Federal and Vanguard High-yield
Can any of the company-specific risk be diversified away by investing in both Franklin Federal and Vanguard High-yield 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 Federal and Vanguard High-yield into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Franklin Federal Tax Free and Vanguard High Yield Tax Exempt, you can compare the effects of market volatilities on Franklin Federal and Vanguard High-yield 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 Federal with a short position of Vanguard High-yield. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Federal and Vanguard High-yield.
Diversification Opportunities for Franklin Federal and Vanguard High-yield
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Franklin and Vanguard is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Federal Tax Free and Vanguard High Yield Tax Exempt in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard High Yield and Franklin Federal 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 Federal Tax Free are associated (or correlated) with Vanguard High-yield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard High Yield has no effect on the direction of Franklin Federal i.e., Franklin Federal and Vanguard High-yield go up and down completely randomly.
Pair Corralation between Franklin Federal and Vanguard High-yield
Assuming the 90 days horizon Franklin Federal Tax Free is expected to under-perform the Vanguard High-yield. But the mutual fund apears to be less risky and, when comparing its historical volatility, Franklin Federal Tax Free is 1.14 times less risky than Vanguard High-yield. The mutual fund trades about -0.28 of its potential returns per unit of risk. The Vanguard High Yield Tax Exempt is currently generating about -0.23 of returns per unit of risk over similar time horizon. If you would invest 1,067 in Vanguard High Yield Tax Exempt on January 25, 2024 and sell it today you would lose (12.00) from holding Vanguard High Yield Tax Exempt or give up 1.12% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Franklin Federal Tax Free vs. Vanguard High Yield Tax Exempt
Performance |
| Timeline |
| Franklin Federal Tax |
| Vanguard High Yield |
Franklin Federal and Vanguard High-yield Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Franklin Federal and Vanguard High-yield
The main advantage of trading using opposite Franklin Federal and Vanguard High-yield positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin Federal position performs unexpectedly, Vanguard High-yield 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 Vanguard High-yield will offset losses from the drop in Vanguard High-yield's long position.| Franklin Federal vs. Vanguard Long Term Tax Exempt | Franklin Federal vs. Vanguard High Yield Tax Exempt | Franklin Federal vs. Strategic Advisers Municipal |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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