Correlation Between Franklin Liberty and SPDR Portfolio

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

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

Diversification Opportunities for Franklin Liberty and SPDR Portfolio

0.98

Correlation Coefficient

Franklin Liberty  SPDR Portfolio

Almost no diversification

The 3 months correlation between Franklin and SPDR is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Liberty Treasury and SPDR Portfolio Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Portfolio Mortgage and Franklin Liberty 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 Liberty Treasury are associated (or correlated) with SPDR Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Portfolio Mortgage has no effect on the direction of Franklin Liberty i.e., Franklin Liberty and SPDR Portfolio go up and down completely randomly.

Pair Corralation between Franklin Liberty and SPDR Portfolio

Given the investment horizon of 90 days Franklin Liberty Treasury is expected to generate 0.75 times more return on investment than SPDR Portfolio. However, Franklin Liberty Treasury is 1.33 times less risky than SPDR Portfolio. It trades about -0.01 of its potential returns per unit of risk. SPDR Portfolio Mortgage is currently generating about -0.03 per unit of risk. If you would invest  2,011  in Franklin Liberty Treasury on February 6, 2024 and sell it today you would lose (2.00) from holding Franklin Liberty Treasury or give up 0.1% of portfolio value over 90 days.

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

Franklin Liberty Treasury  vs.  SPDR Portfolio Mortgage

Franklin Liberty Treasury

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin Liberty Treasury has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental indicators, Franklin Liberty is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

SPDR Portfolio Mortgage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR Portfolio Mortgage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, SPDR Portfolio is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Franklin Liberty and SPDR Portfolio

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

The idea behind Franklin Liberty Treasury and SPDR Portfolio Mortgage 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.