Can any of the company-specific risk be diversified away by investing in both Franklin Templeton and Capitol Series 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 Templeton and Capitol Series into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Franklin Templeton ETF and Capitol Series Trust, you can compare the effects of market volatilities on Franklin Templeton and Capitol Series 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 Templeton with a short position of Capitol Series. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Templeton and Capitol Series.
Diversification Opportunities for Franklin Templeton and Capitol Series
The 3 months correlation between Franklin and Capitol is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Templeton ETF and Capitol Series Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capitol Series Trust and Franklin Templeton 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 Templeton ETF are associated (or correlated) with Capitol Series. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capitol Series Trust has no effect on the direction of Franklin Templeton i.e., Franklin Templeton and Capitol Series go up and down completely randomly.
Pair Corralation between Franklin Templeton and Capitol Series
Given the investment horizon of 90 days Franklin Templeton ETF is expected to generate 0.76 times more return on investment than Capitol Series. However, Franklin Templeton ETF is 1.31 times less risky than Capitol Series. It trades about -0.03 of its potential returns per unit of risk. Capitol Series Trust is currently generating about -0.17 per unit of risk. If you would invest 2,333 in Franklin Templeton ETF on June 27, 2023 and sell it today you would lose (11.00) from holding Franklin Templeton ETF or give up 0.47% of portfolio value over 90 days.
Over the last 90 days Franklin Templeton ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Franklin Templeton is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the insiders.
Over the last 90 days Capitol Series Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Capitol Series is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.
Franklin Templeton and Capitol Series Volatility Contrast
Predicted Return Density
Pair Trading with Franklin Templeton and Capitol Series
The main advantage of trading using opposite Franklin Templeton and Capitol Series positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin Templeton position performs unexpectedly, Capitol Series 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 Capitol Series will offset losses from the drop in Capitol Series' long position.
The idea behind Franklin Templeton ETF and Capitol Series Trust 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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