Correlation Between Templeton World and American Funds
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
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Templeton and American is 0.98. 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
Assuming the 90 days horizon Templeton World Fund is expected to generate 1.05 times more return on investment than American Funds. However, Templeton World is 1.05 times more volatile than American Funds Global. It trades about -0.13 of its potential returns per unit of risk. American Funds Global is currently generating about -0.16 per unit of risk. If you would invest 1,596 in Templeton World Fund on January 24, 2024 and sell it today you would lose (39.00) from holding Templeton World Fund or give up 2.44% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Templeton World Fund vs. American Funds Global
Performance |
Timeline |
Templeton World |
American Funds Global |
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.Templeton World vs. Franklin Mutual Beacon | Templeton World vs. Templeton Developing Markets | Templeton World vs. Franklin Mutual Global | Templeton World vs. Franklin Mutual Global |
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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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