Correlation Between Small Cap and Templeton Global
Can any of the company-specific risk be diversified away by investing in both Small Cap and Templeton Global 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 Small Cap and Templeton Global into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Equity and Templeton Global Smaller, you can compare the effects of market volatilities on Small Cap and Templeton Global 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 Small Cap with a short position of Templeton Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Templeton Global.
Diversification Opportunities for Small Cap and Templeton Global
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Small and Templeton is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Templeton Global Smaller in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Templeton Global Smaller and Small Cap 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 Small Cap Equity are associated (or correlated) with Templeton Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Templeton Global Smaller has no effect on the direction of Small Cap i.e., Small Cap and Templeton Global go up and down completely randomly.
Pair Corralation between Small Cap and Templeton Global
Assuming the 90 days horizon Small Cap Equity is expected to generate 1.39 times more return on investment than Templeton Global. However, Small Cap is 1.39 times more volatile than Templeton Global Smaller. It trades about -0.24 of its potential returns per unit of risk. Templeton Global Smaller is currently generating about -0.48 per unit of risk. If you would invest 1,907 in Small Cap Equity on October 9, 2024 and sell it today you would lose (100.00) from holding Small Cap Equity or give up 5.24% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Equity vs. Templeton Global Smaller
Performance |
| Timeline |
| Small Cap Equity |
| Templeton Global Smaller |
Small Cap and Templeton Global Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Templeton Global
The main advantage of trading using opposite Small Cap and Templeton Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Templeton Global 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 Global will offset losses from the drop in Templeton Global's long position.| Small Cap vs. Short Term Government Fund | Small Cap vs. Intermediate Government Bond | Small Cap vs. Ab Government Exchange | Small Cap vs. Dreyfus Government Cash |
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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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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