Correlation Between Franklin Low and First Eagle
Can any of the company-specific risk be diversified away by investing in both Franklin Low and First Eagle 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 Low and First Eagle into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Franklin Low Duration and First Eagle High, you can compare the effects of market volatilities on Franklin Low and First Eagle 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 Low with a short position of First Eagle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Low and First Eagle.
Diversification Opportunities for Franklin Low and First Eagle
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Franklin and First is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Low Duration and First Eagle High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Eagle High and Franklin Low 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 Low Duration are associated (or correlated) with First Eagle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Eagle High has no effect on the direction of Franklin Low i.e., Franklin Low and First Eagle go up and down completely randomly.
Pair Corralation between Franklin Low and First Eagle
Assuming the 90 days horizon Franklin Low Duration is expected to generate 0.57 times more return on investment than First Eagle. However, Franklin Low Duration is 1.76 times less risky than First Eagle. It trades about -0.07 of its potential returns per unit of risk. First Eagle High is currently generating about -0.17 per unit of risk. If you would invest 890.00 in Franklin Low Duration on January 25, 2024 and sell it today you would lose (2.00) from holding Franklin Low Duration or give up 0.22% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Franklin Low Duration vs. First Eagle High
Performance |
Timeline |
Franklin Low Duration |
First Eagle High |
Franklin Low and First Eagle Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Franklin Low and First Eagle
The main advantage of trading using opposite Franklin Low and First Eagle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin Low position performs unexpectedly, First Eagle 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 First Eagle will offset losses from the drop in First Eagle's long position.The idea behind Franklin Low Duration and First Eagle High 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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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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