Correlation Between Templeton World and Materials Portfolio

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

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

Diversification Opportunities for Templeton World and Materials Portfolio

0.91

Correlation Coefficient

Templeton World  Materials Portfolio

Almost no diversification

The 3 months correlation between Templeton and Materials is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Templeton World Fund and Materials Portfolio Fidelity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Materials Portfolio and Templeton World 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 World Fund are associated (or correlated) with Materials Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Materials Portfolio has no effect on the direction of Templeton World i.e., Templeton World and Materials Portfolio go up and down completely randomly.

Pair Corralation between Templeton World and Materials Portfolio

Assuming the 90 days horizon Templeton World is expected to generate 1.63 times less return on investment than Materials Portfolio. But when comparing it to its historical volatility, Templeton World Fund is 1.16 times less risky than Materials Portfolio. It trades about 0.08 of its potential returns per unit of risk. Materials Portfolio Fidelity is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  9,578  in Materials Portfolio Fidelity on August 31, 2024 and sell it today you would earn a total of  603.00  from holding Materials Portfolio Fidelity or generate 6.3% return on investment over 90 days.

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

Templeton World Fund  vs.  Materials Portfolio Fidelity

Templeton World

Risk-Adjusted Performance

6 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Templeton World Fund are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Templeton World is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Materials Portfolio

Risk-Adjusted Performance

8 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Materials Portfolio Fidelity are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Materials Portfolio may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Templeton World and Materials Portfolio

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

The idea behind Templeton World Fund and Materials Portfolio Fidelity 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.