Correlation Between Capital World and Templeton Global

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

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

Diversification Opportunities for Capital World and Templeton Global

0.99

Correlation Coefficient

Capital World  Templeton Global

No risk reduction

The 3 months correlation between Capital and Templeton is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Capital World Bond and Templeton Global Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Templeton Global Bond and Capital World 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 Capital World Bond 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 Bond has no effect on the direction of Capital World i.e., Capital World and Templeton Global go up and down completely randomly.

Pair Corralation between Capital World and Templeton Global

Assuming the 90 days horizon Capital World Bond is expected to generate 0.6 times more return on investment than Templeton Global. However, Capital World Bond is 1.67 times less risky than Templeton Global. It trades about -0.05 of its potential returns per unit of risk. Templeton Global Bond is currently generating about -0.06 per unit of risk. If you would invest  1,596  in Capital World Bond on August 31, 2024 and sell it today you would lose (8.00) from holding Capital World Bond or give up 0.5% of portfolio value over 90 days.

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

Capital World Bond  vs.  Templeton Global Bond

Capital World Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Templeton Global Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Capital World and Templeton Global

The main advantage of trading using opposite Capital World and Templeton Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital World 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.

The idea behind Capital World Bond and Templeton Global Bond 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.