Correlation Between Templeton Developing and Western Asset

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

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

Diversification Opportunities for Templeton Developing and Western Asset

0.69

Correlation Coefficient

Templeton Developing  Western Asset

Poor diversification

The 3 months correlation between Templeton and Western is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Templeton Developing Markets and Western Asset Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Mortgage and Templeton Developing 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 Developing Markets are associated (or correlated) with Western Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Asset Mortgage has no effect on the direction of Templeton Developing i.e., Templeton Developing and Western Asset go up and down completely randomly.

Pair Corralation between Templeton Developing and Western Asset

Assuming the 90 days horizon Templeton Developing Markets is expected to under-perform the Western Asset. In addition to that, Templeton Developing is 2.65 times more volatile than Western Asset Mortgage. It trades about -0.12 of its total potential returns per unit of risk. Western Asset Mortgage is currently generating about -0.17 per unit of volatility. If you would invest  848.00  in Western Asset Mortgage on September 28, 2024 and sell it today you would lose (30.00) from holding Western Asset Mortgage or give up 3.54% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Templeton Developing Markets  vs.  Western Asset Mortgage

Templeton Developing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Templeton Developing Markets has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Western Asset Mortgage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Asset Mortgage has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Western Asset 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 Developing and Western Asset

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

The idea behind Templeton Developing Markets and Western Asset Mortgage 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.