Correlation Between Templeton Growth and Small Cap
Can any of the company-specific risk be diversified away by investing in both Templeton Growth and Small Cap 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 Small Cap 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 Small Cap Stock, you can compare the effects of market volatilities on Templeton Growth and Small Cap 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 Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Templeton Growth and Small Cap.
Diversification Opportunities for Templeton Growth and Small Cap
0.48 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Templeton and Small is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Templeton Growth Fund and Small Cap Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Stock 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 Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Stock has no effect on the direction of Templeton Growth i.e., Templeton Growth and Small Cap go up and down completely randomly.
Pair Corralation between Templeton Growth and Small Cap
Assuming the 90 days horizon Templeton Growth Fund is expected to under-perform the Small Cap. But the mutual fund apears to be less risky and, when comparing its historical volatility, Templeton Growth Fund is 1.15 times less risky than Small Cap. The mutual fund trades about -0.14 of its potential returns per unit of risk. The Small Cap Stock is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 1,475 in Small Cap Stock on September 15, 2024 and sell it today you would earn a total of 11.00 from holding Small Cap Stock or generate 0.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Templeton Growth Fund vs. Small Cap Stock
Performance |
| Timeline |
| Templeton Growth |
| Small Cap Stock |
Templeton Growth and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Templeton Growth and Small Cap
The main advantage of trading using opposite Templeton Growth and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Templeton Growth position performs unexpectedly, Small Cap 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 Small Cap will offset losses from the drop in Small Cap's long position.| Templeton Growth vs. Small Cap Stock | Templeton Growth vs. Delaware Limited Term Diversified | Templeton Growth vs. Massmutual Premier Diversified | Templeton Growth vs. Sentinel Small Pany |
| Small Cap vs. Income Fund Income | Small Cap vs. Usaa Nasdaq 100 | Small Cap vs. Victory Diversified Stock | Small Cap vs. Intermediate Term Bond Fund |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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