Correlation Between Templeton Growth and New Perspective

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

Diversification Opportunities for Templeton Growth and New Perspective

0.94
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Templeton and New is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding TEMPLETON GROWTH FUND and NEW PERSPECTIVE FUND in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Perspective Fund and Templeton Growth 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 Growth Fund are associated (or correlated) with New Perspective. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Perspective Fund has no effect on the direction of Templeton Growth i.e., Templeton Growth and New Perspective go up and down completely randomly.

Pair Corralation between Templeton Growth and New Perspective

Assuming the 90 days horizon Templeton Growth Fund is expected to generate 0.82 times more return on investment than New Perspective. However, Templeton Growth Fund is 1.22 times less risky than New Perspective. It trades about 0.37 of its potential returns per unit of risk. New Perspective Fund is currently generating about 0.18 per unit of risk. If you would invest  2,626  in Templeton Growth Fund on December 29, 2023 and sell it today you would earn a total of  120.00  from holding Templeton Growth Fund or generate 4.57% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

TEMPLETON GROWTH FUND  vs.  NEW PERSPECTIVE FUND

 Performance 
       Timeline  
Templeton Growth Fund 

Risk-Adjusted Performance

13 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Templeton Growth Fund are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Templeton Growth may actually be approaching a critical reversion point that can send shares even higher in April 2024.
New Perspective Fund 

Risk-Adjusted Performance

14 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in New Perspective Fund are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, New Perspective may actually be approaching a critical reversion point that can send shares even higher in April 2024.

Templeton Growth and New Perspective Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Templeton Growth and New Perspective

The main advantage of trading using opposite Templeton Growth and New Perspective positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Templeton Growth position performs unexpectedly, New Perspective 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 New Perspective will offset losses from the drop in New Perspective's long position.
The idea behind Templeton Growth Fund and New Perspective 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.
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

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