Can any of the company-specific risk be diversified away by investing in both Capital Income and Templeton Global 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 Capital Income and Templeton Global into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Capital Income Builder and Templeton Global Balanced, you can compare the effects of market volatilities on Capital Income and Templeton Global 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 Capital Income with a short position of Templeton Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Income and Templeton Global.
Diversification Opportunities for Capital Income and Templeton Global
The 3 months correlation between Capital and Templeton is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Capital Income Builder and Templeton Global Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Templeton Global Balanced and Capital Income 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 Capital Income Builder are associated (or correlated) with Templeton Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Templeton Global Balanced has no effect on the direction of Capital Income i.e., Capital Income and Templeton Global go up and down completely randomly.
Pair Corralation between Capital Income and Templeton Global
Assuming the 90 days horizon Capital Income is expected to generate 1.34 times less return on investment than Templeton Global. But when comparing it to its historical volatility, Capital Income Builder is 1.32 times less risky than Templeton Global. It trades about 0.06 of its potential returns per unit of risk. Templeton Global Balanced is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 216.00 in Templeton Global Balanced on March 6, 2024 and sell it today you would earn a total of 35.00 from holding Templeton Global Balanced or generate 16.2% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Capital Income Builder are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Capital Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Compared to the overall equity markets, risk-adjusted returns on investments in Templeton Global Balanced are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Templeton Global is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.