Correlation Between American Funds and Templeton Developing

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

By analyzing existing cross correlation between American Funds 2065 and Templeton Developing Markets, you can compare the effects of market volatilities on American Funds and Templeton Developing 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 American Funds with a short position of Templeton Developing. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Templeton Developing.

Diversification Opportunities for American Funds and Templeton Developing

0.36

Correlation Coefficient

American Funds  Templeton Developing

Weak diversification

The 3 months correlation between American and Templeton is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding American Funds 2065 and Templeton Developing Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Templeton Developing and American Funds 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 American Funds 2065 are associated (or correlated) with Templeton Developing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Templeton Developing has no effect on the direction of American Funds i.e., American Funds and Templeton Developing go up and down completely randomly.

Pair Corralation between American Funds and Templeton Developing

Assuming the 90 days horizon American Funds 2065 is expected to generate 0.52 times more return on investment than Templeton Developing. However, American Funds 2065 is 1.94 times less risky than Templeton Developing. It trades about 0.14 of its potential returns per unit of risk. Templeton Developing Markets is currently generating about 0.05 per unit of risk. If you would invest  1,750  in American Funds 2065 on September 12, 2024 and sell it today you would earn a total of  87.00  from holding American Funds 2065 or generate 4.97% return on investment over 90 days.

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

American Funds 2065  vs.  Templeton Developing Markets

American Funds 2065

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds 2065 are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Templeton Developing

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with American Funds and Templeton Developing

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

The idea behind American Funds 2065 and Templeton Developing 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..