Correlation Between California Bond and Templeton China

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

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

Diversification Opportunities for California Bond and Templeton China

0.27

Correlation Coefficient

California Bond  Templeton China

Modest diversification

The 3 months correlation between California and Templeton is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding California Bond Fund and Templeton China World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Templeton China World and California Bond 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 California Bond Fund are associated (or correlated) with Templeton China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Templeton China World has no effect on the direction of California Bond i.e., California Bond and Templeton China go up and down completely randomly.

Pair Corralation between California Bond and Templeton China

Assuming the 90 days horizon California Bond is expected to generate 49.7 times less return on investment than Templeton China. But when comparing it to its historical volatility, California Bond Fund is 11.0 times less risky than Templeton China. It trades about 0.04 of its potential returns per unit of risk. Templeton China World is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  697.00  in Templeton China World on September 12, 2024 and sell it today you would earn a total of  125.00  from holding Templeton China World or generate 17.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	52.38%
Values	Daily Returns

California Bond Fund  vs.  Templeton China World

California Bond

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in California Bond Fund are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, California Bond is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Templeton China World

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Templeton China World has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly weak basic indicators, Templeton China showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with California Bond and Templeton China

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

The idea behind California Bond Fund and Templeton China World 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.