Correlation Between American Funds and Templeton World

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

By analyzing existing cross correlation between American Funds Global and Templeton World Fund, you can compare the effects of market volatilities on American Funds and Templeton World 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 American Funds with a short position of Templeton World. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Templeton World.

Diversification Opportunities for American Funds and Templeton World

0.98

Correlation Coefficient

American Funds  Templeton World

Almost no diversification

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

Pair Corralation between American Funds and Templeton World

Assuming the 90 days horizon American Funds Global is expected to under-perform the Templeton World. But the mutual fund apears to be less risky and, when comparing its historical volatility, American Funds Global is 1.11 times less risky than Templeton World. The mutual fund trades about -0.31 of its potential returns per unit of risk. The Templeton World Fund is currently generating about -0.24 of returns per unit of risk over similar time horizon. If you would invest  1,596  in Templeton World Fund on January 24, 2024 and sell it today you would lose (62.00) from holding Templeton World Fund or give up 3.88% of portfolio value over 90 days.

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

American Funds Global  vs.  Templeton World Fund

American Funds Global

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds Global are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Templeton World

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Templeton World Fund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Templeton World may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with American Funds and Templeton World

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

The idea behind American Funds Global and Templeton World Fund 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.