Correlation Between Templeton Constrained and Plumb Balanced

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

By analyzing existing cross correlation between Templeton Strained Bond and Plumb Balanced, you can compare the effects of market volatilities on Templeton Constrained and Plumb Balanced 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 Constrained with a short position of Plumb Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Templeton Constrained and Plumb Balanced.

Diversification Opportunities for Templeton Constrained and Plumb Balanced

-0.33

Correlation Coefficient

Templeton Constrained  Plumb Balanced

Very good diversification

The 3 months correlation between Templeton and Plumb is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Templeton Strained Bond and Plumb Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plumb Balanced and Templeton Constrained 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 Strained Bond are associated (or correlated) with Plumb Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plumb Balanced has no effect on the direction of Templeton Constrained i.e., Templeton Constrained and Plumb Balanced go up and down completely randomly.

Pair Corralation between Templeton Constrained and Plumb Balanced

Assuming the 90 days horizon Templeton Strained Bond is expected to generate 0.07 times more return on investment than Plumb Balanced. However, Templeton Strained Bond is 13.54 times less risky than Plumb Balanced. It trades about 0.57 of its potential returns per unit of risk. Plumb Balanced is currently generating about -0.08 per unit of risk. If you would invest  999.00  in Templeton Strained Bond on December 29, 2024 and sell it today you would earn a total of  21.00  from holding Templeton Strained Bond or generate 2.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Templeton Strained Bond  vs.  Plumb Balanced

Templeton Strained Bond

Risk-Adjusted Performance

Excellent

Compared to the overall equity markets, risk-adjusted returns on investments in Templeton Strained Bond are ranked lower than 45 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Templeton Constrained is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Plumb Balanced

Risk-Adjusted Performance

Very Weak

Over the last 90 days Plumb Balanced has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental drivers, Plumb Balanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Templeton Constrained and Plumb Balanced

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

The idea behind Templeton Strained Bond and Plumb Balanced 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.

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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.