Correlation Between Ford and Franklin Income

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

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

Diversification Opportunities for Ford and Franklin Income

0.68

Correlation Coefficient

Ford  Franklin Income

Poor diversification

The 3 months correlation between Ford and Franklin is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Franklin Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Me Fund and Ford 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 Ford Motor are associated (or correlated) with Franklin Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Me Fund has no effect on the direction of Ford i.e., Ford and Franklin Income go up and down completely randomly.

Pair Corralation between Ford and Franklin Income

Taking into account the 90-day investment horizon Ford Motor is expected to generate 4.23 times more return on investment than Franklin Income. However, Ford is 4.23 times more volatile than Franklin Income Fund. It trades about 0.01 of its potential returns per unit of risk. Franklin Income Fund is currently generating about 0.02 per unit of risk. If you would invest  1,224  in Ford Motor on January 19, 2024 and sell it today you would lose (20.00) from holding Ford Motor or give up 1.63% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Ford Motor  vs.  Franklin Income Fund

Ford Motor

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, Ford may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Franklin Me Fund

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Income Fund are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Franklin Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ford and Franklin Income

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

The idea behind Ford Motor and Franklin Income Fund 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.