Correlation Between FRANKLIN and Chevron Corp

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

By analyzing existing cross correlation between FRANKLIN K2 ALTERNATIVE and Chevron Corp, you can compare the effects of market volatilities on FRANKLIN and Chevron Corp 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 with a short position of Chevron Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of FRANKLIN and Chevron Corp.

Diversification Opportunities for FRANKLIN and Chevron Corp

0.51

Correlation Coefficient

FRANKLIN Chevron Corp

Very weak diversification

The 3 months correlation between FRANKLIN and Chevron is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding FRANKLIN K2 ALTERNATIVE and Chevron Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chevron Corp and FRANKLIN 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 K2 ALTERNATIVE are associated (or correlated) with Chevron Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chevron Corp has no effect on the direction of FRANKLIN i.e., FRANKLIN and Chevron Corp go up and down completely randomly.

Pair Corralation between FRANKLIN and Chevron Corp

Assuming the 90 days horizon FRANKLIN K2 ALTERNATIVE is expected to generate 0.11 times more return on investment than Chevron Corp. However, FRANKLIN K2 ALTERNATIVE is 8.84 times less risky than Chevron Corp. It trades about 0.0 of its potential returns per unit of risk. Chevron Corp is currently generating about -0.07 per unit of risk. If you would invest  1,070  in FRANKLIN K2 ALTERNATIVE on February 28, 2023 and sell it today you would lose (1.00)  from holding FRANKLIN K2 ALTERNATIVE or give up 0.09% of portfolio value over 90 days.

FRANKLIN K2 ALTERNATIVE  vs.  Chevron Corp

FRANKLIN K2 ALTERNATIVE

FRANKLIN Performance

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Over the last 90 days FRANKLIN K2 ALTERNATIVE has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, FRANKLIN is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Chevron Corp

Chevron Performance

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Over the last 90 days Chevron Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Chevron Corp is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with FRANKLIN and Chevron Corp

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

The idea behind FRANKLIN K2 ALTERNATIVE and Chevron Corp 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .