Correlation Between Templeton Emerging and Federated Equity

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

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

Diversification Opportunities for Templeton Emerging and Federated Equity

-0.48

Correlation Coefficient

Templeton Emerging  Federated Equity

Very good diversification

The 3 months correlation between Templeton and Federated is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Templeton Emerging Markets and Federated Equity Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Equity Income and Templeton Emerging 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 Emerging Markets are associated (or correlated) with Federated Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Equity Income has no effect on the direction of Templeton Emerging i.e., Templeton Emerging and Federated Equity go up and down completely randomly.

Pair Corralation between Templeton Emerging and Federated Equity

Assuming the 90 days horizon Templeton Emerging Markets is expected to under-perform the Federated Equity. But the mutual fund apears to be less risky and, when comparing its historical volatility, Templeton Emerging Markets is 1.39 times less risky than Federated Equity. The mutual fund trades about -0.03 of its potential returns per unit of risk. The Federated Equity Income is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,527  in Federated Equity Income on September 13, 2024 and sell it today you would earn a total of  62.00  from holding Federated Equity Income or generate 2.45% return on investment over 90 days.

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

Templeton Emerging Markets  vs.  Federated Equity Income

Templeton Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

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

Federated Equity Income

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Equity Income are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Federated Equity 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 Emerging and Federated Equity

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

The idea behind Templeton Emerging Markets and Federated Equity Income 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.