Correlation Between Franklin Strategic and Disney

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

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

Diversification Opportunities for Franklin Strategic and Disney

-0.4

Correlation Coefficient

Franklin Strategic  Disney

Very good diversification

The 3 months correlation between Franklin and Disney is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Strategic Mortgage and Walt Disney in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walt Disney and Franklin Strategic 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 Strategic Mortgage are associated (or correlated) with Disney. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walt Disney has no effect on the direction of Franklin Strategic i.e., Franklin Strategic and Disney go up and down completely randomly.

Pair Corralation between Franklin Strategic and Disney

Assuming the 90 days horizon Franklin Strategic is expected to generate 5.55 times less return on investment than Disney. But when comparing it to its historical volatility, Franklin Strategic Mortgage is 3.54 times less risky than Disney. It trades about 0.1 of its potential returns per unit of risk. Walt Disney is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  8,298  in Walt Disney on January 17, 2024 and sell it today you would earn a total of  2,997  from holding Walt Disney or generate 36.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Franklin Strategic Mortgage  vs.  Walt Disney

Franklin Strategic

Risk-Adjusted Performance

0 of 100

Very Weak

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

Walt Disney

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak forward indicators, Disney unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Franklin Strategic and Disney

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

The idea behind Franklin Strategic Mortgage and Walt Disney 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.