Correlation Between Absolute Convertible and Templeton Growth

Can any of the company-specific risk be diversified away by investing in both Absolute Convertible and Templeton Growth 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 Absolute Convertible and Templeton Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Absolute Convertible Arbitrage and Templeton Growth Fund, you can compare the effects of market volatilities on Absolute Convertible and Templeton Growth 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 Absolute Convertible with a short position of Templeton Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Absolute Convertible and Templeton Growth.

Diversification Opportunities for Absolute Convertible and Templeton Growth

0.46

Correlation Coefficient

Absolute Convertible  Templeton Growth

Very weak diversification

The 3 months correlation between Absolute and Templeton is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Absolute Convertible Arbitrage and Templeton Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Templeton Growth and Absolute Convertible 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 Absolute Convertible Arbitrage are associated (or correlated) with Templeton Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Templeton Growth has no effect on the direction of Absolute Convertible i.e., Absolute Convertible and Templeton Growth go up and down completely randomly.

Pair Corralation between Absolute Convertible and Templeton Growth

Assuming the 90 days horizon Absolute Convertible is expected to generate 2.45 times less return on investment than Templeton Growth. But when comparing it to its historical volatility, Absolute Convertible Arbitrage is 11.52 times less risky than Templeton Growth. It trades about 0.37 of its potential returns per unit of risk. Templeton Growth Fund is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,080  in Templeton Growth Fund on September 12, 2024 and sell it today you would earn a total of  674.00  from holding Templeton Growth Fund or generate 32.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Absolute Convertible Arbitrage  vs.  Templeton Growth Fund

Absolute Convertible

Risk-Adjusted Performance

40 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Absolute Convertible Arbitrage are ranked lower than 40 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Absolute Convertible is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Templeton Growth

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Templeton Growth Fund are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Templeton Growth is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Absolute Convertible and Templeton Growth

The main advantage of trading using opposite Absolute Convertible and Templeton Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Absolute Convertible position performs unexpectedly, Templeton Growth 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 Growth will offset losses from the drop in Templeton Growth's long position.

The idea behind Absolute Convertible Arbitrage and Templeton Growth 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .