Correlation Between Templeton Global and American Funds
Can any of the company-specific risk be diversified away by investing in both Templeton Global 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 Global 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 Global Smaller and American Funds Smallcap, you can compare the effects of market volatilities on Templeton Global 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 Global with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Templeton Global and American Funds.
Diversification Opportunities for Templeton Global and American Funds
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Templeton and American is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Templeton Global Smaller and American Funds Smallcap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Smallcap and Templeton Global 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 Global Smaller 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 Smallcap has no effect on the direction of Templeton Global i.e., Templeton Global and American Funds go up and down completely randomly.
Pair Corralation between Templeton Global and American Funds
Assuming the 90 days horizon Templeton Global is expected to generate 2.55 times less return on investment than American Funds. But when comparing it to its historical volatility, Templeton Global Smaller is 1.02 times less risky than American Funds. It trades about 0.06 of its potential returns per unit of risk. American Funds Smallcap is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 6,986 in American Funds Smallcap on August 31, 2024 and sell it today you would earn a total of 188.00 from holding American Funds Smallcap or generate 2.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Templeton Global Smaller vs. American Funds Smallcap
Performance |
| Timeline |
| Templeton Global Smaller |
| American Funds Smallcap |
Templeton Global and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Templeton Global and American Funds
The main advantage of trading using opposite Templeton Global and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Templeton Global 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 Global vs. American Funds Smallcap | Templeton Global vs. Smallcap World Fund | Templeton Global vs. Smallcap World Fund | Templeton Global vs. Smallcap World Fund |
| American Funds vs. Pioneer High Yield | American Funds vs. Alpine High Yield | American Funds vs. Mesirow Financial High | American Funds vs. Pace High Yield |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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