Correlation Between Emerging Markets and Franklin Equity

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

By analyzing existing cross correlation between Emerging Markets Fund and Franklin Equity Income, you can compare the effects of market volatilities on Emerging Markets and Franklin Equity 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 Emerging Markets with a short position of Franklin Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerging Markets and Franklin Equity.

Diversification Opportunities for Emerging Markets and Franklin Equity

0.87

Correlation Coefficient

Emerging Markets  Franklin Equity

Very poor diversification

The 3 months correlation between Emerging and Franklin is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets Fund and Franklin Equity Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Equity Income and Emerging Markets 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 Emerging Markets Fund are associated (or correlated) with Franklin Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Equity Income has no effect on the direction of Emerging Markets i.e., Emerging Markets and Franklin Equity go up and down completely randomly.

Pair Corralation between Emerging Markets and Franklin Equity

Assuming the 90 days horizon Emerging Markets Fund is expected to generate 1.35 times more return on investment than Franklin Equity. However, Emerging Markets is 1.35 times more volatile than Franklin Equity Income. It trades about 0.22 of its potential returns per unit of risk. Franklin Equity Income is currently generating about 0.17 per unit of risk. If you would invest  1,557  in Emerging Markets Fund on July 4, 2025 and sell it today you would earn a total of  149.00  from holding Emerging Markets Fund or generate 9.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Emerging Markets Fund  vs.  Franklin Equity Income

Emerging Markets

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Emerging Markets Fund are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Emerging Markets may actually be approaching a critical reversion point that can send shares even higher in November 2025.

Franklin Equity Income

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Equity Income are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Franklin Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Emerging Markets and Franklin Equity

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

The idea behind Emerging Markets Fund and Franklin Equity Income 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.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.