Correlation Between Templeton World and American Funds

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Can any of the company-specific risk be diversified away by investing in both Templeton World and American Funds 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 Templeton World and American Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Templeton World Fund and American Funds Global, you can compare the effects of market volatilities on Templeton World and American Funds 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 Templeton World with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Templeton World and American Funds.

Diversification Opportunities for Templeton World and American Funds

0.74
  Correlation Coefficient

Poor diversification

The 3 months correlation between Templeton and American is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding TEMPLETON WORLD FUND and AMERICAN FUNDS GLOBAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Global and Templeton World 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 Templeton World Fund are associated (or correlated) with American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Global has no effect on the direction of Templeton World i.e., Templeton World and American Funds go up and down completely randomly.

Pair Corralation between Templeton World and American Funds

If you would invest  1,313  in Templeton World Fund on December 29, 2023 and sell it today you would earn a total of  291.00  from holding Templeton World Fund or generate 22.16% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy0.0%
ValuesDaily Returns

TEMPLETON WORLD FUND  vs.  AMERICAN FUNDS GLOBAL

 Performance 
       Timeline  
Templeton World Fund 

Risk-Adjusted Performance

16 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Templeton World Fund are ranked lower than 16 (%) 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 April 2024.
American Funds Global 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Good
Over the last 90 days American Funds Global has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly weak fundamental indicators, American Funds may actually be approaching a critical reversion point that can send shares even higher in April 2024.

Templeton World and American Funds Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Templeton World and American Funds

The main advantage of trading using opposite Templeton World and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Templeton World position performs unexpectedly, American Funds 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 American Funds will offset losses from the drop in American Funds' long position.
The idea behind Templeton World Fund and American Funds Global 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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