Correlation Between Templeton Dragon and State Farm

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

By analyzing existing cross correlation between Templeton Dragon Closed and State Farm International, you can compare the effects of market volatilities on Templeton Dragon and State Farm 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 Dragon with a short position of State Farm. Check out your portfolio center. Please also check ongoing floating volatility patterns of Templeton Dragon and State Farm.

Diversification Opportunities for Templeton Dragon and State Farm

-0.41

Correlation Coefficient

Templeton Dragon  State Farm

Very good diversification

The 3 months correlation between Templeton and State is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Templeton Dragon Closed and State Farm International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Farm International and Templeton Dragon 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 Dragon Closed are associated (or correlated) with State Farm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Farm International has no effect on the direction of Templeton Dragon i.e., Templeton Dragon and State Farm go up and down completely randomly.

Pair Corralation between Templeton Dragon and State Farm

Considering the 90-day investment horizon Templeton Dragon Closed is expected to generate 7.25 times more return on investment than State Farm. However, Templeton Dragon is 7.25 times more volatile than State Farm International. It trades about -0.01 of its potential returns per unit of risk. State Farm International is currently generating about -0.12 per unit of risk. If you would invest  870.00  in Templeton Dragon Closed on September 17, 2024 and sell it today you would lose (11.00) from holding Templeton Dragon Closed or give up 1.26% of portfolio value over 90 days.

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

Templeton Dragon Closed  vs.  State Farm International

Templeton Dragon Closed

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Templeton Dragon Closed are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. Despite nearly unsteady fundamental indicators, Templeton Dragon reported solid returns over the last few months and may actually be approaching a breakup point.

State Farm International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days State Farm International has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, State Farm 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 Dragon and State Farm

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

The idea behind Templeton Dragon Closed and State Farm International 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.