Calculates factor correlations between each factor. This is useful to understand how correlated each factor is to each other. This is based off the Fama and French 5 Factor model which includes:

  • Market Risk Premium (Mkt-RF): Represents the additional return that investors expect to earn for taking on the risk of investing in the overall market as opposed to a risk-free asset.
  • Size Premium (SMB): Reflects the historical excess return of small-cap stocks over large-cap stocks.
  • Value Premium (HML): Captures the historical excess return of value stocks over growth stocks.
  • Profitability (RMW): Measures the historical excess return of high profitability stocks over low profitability stocks.
  • Investment (CMA): Quantifies the historical excess return of low investment stocks over high investment stocks.

Optionally, it is also possible to see the correlation between the risk-free rate and each factor.

Also known as: factor model correlations.

No programming experience? With the Finance Toolkit MCP server, AI assistants such as Claude and ChatGPT can calculate the Factor Correlations for you. Just ask in plain English.

Calculate the Factor Correlations in Python

The Factor Correlations is available in the Performance module of the open-source Finance Toolkit. Install it with:

pip install financetoolkit -U

Then call get_factor_correlations as shown below.

from financetoolkit import Toolkit

toolkit = Toolkit(["AAPL", "TSLA"], api_key="FINANCIAL_MODELING_PREP_KEY", start_date="2023-01-01")

toolkit.performance.get_factor_correlations()

Which returns:

  Mkt-RF SMB HML RMW CMA
(2026, ‘Mkt-RF’) 1 0.1702 -0.4054 -0.5902 -0.4198
(2026, ‘SMB’) 0.1702 1 0.2113 -0.1127 0.2437
(2026, ‘HML’) -0.4054 0.2113 1 0.3432 0.7051
(2026, ‘RMW’) -0.5902 -0.1127 0.3432 1 0.4182
(2026, ‘CMA’) -0.4198 0.2437 0.7051 0.4182 1

Parameters

get_factor_correlations accepts the following parameters:

  • period (str, optional): The period to use for the calculation. Defaults to “quarterly” if the Toolkit is initialised with quarterly=True, otherwise “yearly”.
  • factors_to_calculate (list of str, optional): List of factors to calculate scores and residuals for. Defaults to [“Mkt-RF”, “SMB”, “HML”, “RMW”, “CMA”].
  • exclude_risk_free (bool, optional): Whether to exclude the risk-free rate from the results. Defaults to True.
  • rounding (int, optional): The number of decimals to round the results to. Defaults to 4.
Beta Capital Asset Pricing Model (CAPM) Factor Asset Correlations Fama and French Model (FF) Alpha Jensen's Alpha Treynor Ratio Sharpe Ratio Sortino Ratio Ulcer Performance Index (UPI) Calmar Ratio Sterling Ratio

The Performance module page introduces the module, and the sidebar lists all of its functions.

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