Correlation Between Templeton Growth and Prudential Financial

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

By analyzing existing cross correlation between Templeton Growth Fund and Prudential Financial Services, you can compare the effects of market volatilities on Templeton Growth and Prudential Financial 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 Growth with a short position of Prudential Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Templeton Growth and Prudential Financial.

Diversification Opportunities for Templeton Growth and Prudential Financial

0.4

Correlation Coefficient

Templeton Growth  Prudential Financial

Very weak diversification

The 3 months correlation between Templeton and PRUDENTIAL is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Templeton Growth Fund and Prudential Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Financial and Templeton Growth 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 Growth Fund are associated (or correlated) with Prudential Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Financial has no effect on the direction of Templeton Growth i.e., Templeton Growth and Prudential Financial go up and down completely randomly.

Pair Corralation between Templeton Growth and Prudential Financial

Assuming the 90 days horizon Templeton Growth is expected to generate 4.92 times less return on investment than Prudential Financial. But when comparing it to its historical volatility, Templeton Growth Fund is 1.77 times less risky than Prudential Financial. It trades about 0.07 of its potential returns per unit of risk. Prudential Financial Services is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  2,263  in Prudential Financial Services on September 5, 2024 and sell it today you would earn a total of  331.00  from holding Prudential Financial Services or generate 14.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Templeton Growth Fund  vs.  Prudential Financial Services

Templeton Growth

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Templeton Growth Fund are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, Templeton Growth is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Prudential Financial

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Financial Services are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Prudential Financial showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Templeton Growth and Prudential Financial

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

The idea behind Templeton Growth Fund and Prudential Financial Services 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.