Correlation Between Strategic Allocation and Franklin

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

By analyzing existing cross correlation between Strategic Allocation Servative and Franklin K2 Alternative, you can compare the effects of market volatilities on Strategic Allocation and Franklin 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 Strategic Allocation with a short position of Franklin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Strategic Allocation and Franklin.

Diversification Opportunities for Strategic Allocation and Franklin

0.88

Correlation Coefficient

Strategic Allocation  Franklin

Very poor diversification

The 3 months correlation between Strategic and Franklin is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Strategic Allocation Servative and Franklin K2 Alternative in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin K2 Alternative and Strategic Allocation 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 Strategic Allocation Servative are associated (or correlated) with Franklin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin K2 Alternative has no effect on the direction of Strategic Allocation i.e., Strategic Allocation and Franklin go up and down completely randomly.

Pair Corralation between Strategic Allocation and Franklin

Assuming the 90 days horizon Strategic Allocation is expected to generate 1.09 times less return on investment than Franklin. In addition to that, Strategic Allocation is 2.55 times more volatile than Franklin K2 Alternative. It trades about 0.06 of its total potential returns per unit of risk. Franklin K2 Alternative is currently generating about 0.16 per unit of volatility. If you would invest  1,071  in Franklin K2 Alternative on January 19, 2024 and sell it today you would earn a total of  72.00  from holding Franklin K2 Alternative or generate 6.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.6%
Values	Daily Returns

Strategic Allocation Servative  vs.  Franklin K2 Alternative

Strategic Allocation

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Strategic Allocation Servative are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Strategic Allocation is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Franklin K2 Alternative

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin K2 Alternative are ranked lower than 28 (%) of all funds and portfolios of funds over the last 90 days. 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.

Pair Trading with Strategic Allocation and Franklin

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

The idea behind Strategic Allocation Servative and Franklin K2 Alternative 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 Global Correlations module to find global opportunities by holding instruments from different markets.