Correlation Between Largecap and Templeton Emerging

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

By analyzing existing cross correlation between Largecap Sp 500 and Templeton Emerging Markets, you can compare the effects of market volatilities on Largecap and Templeton Emerging 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 Largecap with a short position of Templeton Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Largecap and Templeton Emerging.

Diversification Opportunities for Largecap and Templeton Emerging

-0.46

Correlation Coefficient

Largecap  Templeton Emerging

Very good diversification

The 3 months correlation between Largecap and Templeton is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Largecap Sp 500 and Templeton Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Templeton Emerging and Largecap 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 Largecap Sp 500 are associated (or correlated) with Templeton Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Templeton Emerging has no effect on the direction of Largecap i.e., Largecap and Templeton Emerging go up and down completely randomly.

Pair Corralation between Largecap and Templeton Emerging

Assuming the 90 days horizon Largecap Sp 500 is expected to generate 0.76 times more return on investment than Templeton Emerging. However, Largecap Sp 500 is 1.31 times less risky than Templeton Emerging. It trades about 0.09 of its potential returns per unit of risk. Templeton Emerging Markets is currently generating about 0.02 per unit of risk. If you would invest  1,975  in Largecap Sp 500 on October 7, 2024 and sell it today you would earn a total of  886.00  from holding Largecap Sp 500 or generate 44.86% return on investment over 90 days.

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

Largecap Sp 500  vs.  Templeton Emerging Markets

Largecap Sp 500

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Largecap Sp 500 are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Largecap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Templeton Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Templeton Emerging Markets has generated negative risk-adjusted returns adding no value to fund investors. Despite latest inconsistent performance, the Fund's primary indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the mutual fund stockholders.

Pair Trading with Largecap and Templeton Emerging

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

The idea behind Largecap Sp 500 and Templeton Emerging Markets 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.