Correlation Between Tennessee Tax-free and Franklin Liberty

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Can any of the company-specific risk be diversified away by investing in both Tennessee Tax-free and Franklin Liberty 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 Tennessee Tax-free and Franklin Liberty into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tennessee Tax Free Short To Medium and Franklin Liberty Ultra, you can compare the effects of market volatilities on Tennessee Tax-free and Franklin Liberty 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 Tennessee Tax-free with a short position of Franklin Liberty. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tennessee Tax-free and Franklin Liberty.

Diversification Opportunities for Tennessee Tax-free and Franklin Liberty

-0.1
  Correlation Coefficient

Good diversification

The 3 months correlation between Tennessee and Franklin is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding TENNESSEE TAX-FREE SHORT-TO-ME and Franklin Liberty Ultra in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Liberty Ultra and Tennessee Tax-free 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 Tennessee Tax Free Short To Medium are associated (or correlated) with Franklin Liberty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Liberty Ultra has no effect on the direction of Tennessee Tax-free i.e., Tennessee Tax-free and Franklin Liberty go up and down completely randomly.

Pair Corralation between Tennessee Tax-free and Franklin Liberty

Assuming the 90 days horizon Tennessee Tax Free Short To Medium is expected to under-perform the Franklin Liberty. But the mutual fund apears to be less risky and, when comparing its historical volatility, Tennessee Tax Free Short To Medium is 1.12 times less risky than Franklin Liberty. The mutual fund trades about -0.28 of its potential returns per unit of risk. The Franklin Liberty Ultra is currently generating about 0.46 of returns per unit of risk over similar time horizon. If you would invest  2,474  in Franklin Liberty Ultra on December 29, 2023 and sell it today you would earn a total of  13.00  from holding Franklin Liberty Ultra or generate 0.53% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

TENNESSEE TAX-FREE SHORT-TO-ME  vs.  Franklin Liberty Ultra

 Performance 
       Timeline  
Tennessee Tax-free 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Tennessee Tax Free Short To Medium has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong primary indicators, Tennessee Tax-free is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Franklin Liberty Ultra 

Risk-Adjusted Performance

25 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Liberty Ultra are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Franklin Liberty is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Tennessee Tax-free and Franklin Liberty Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Tennessee Tax-free and Franklin Liberty

The main advantage of trading using opposite Tennessee Tax-free and Franklin Liberty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tennessee Tax-free position performs unexpectedly, Franklin Liberty 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 Liberty will offset losses from the drop in Franklin Liberty's long position.
The idea behind Tennessee Tax Free Short To Medium and Franklin Liberty Ultra 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.

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