Correlation Between American High-income and Putnam Focused

Can any of the company-specific risk be diversified away by investing in both American High-income and Putnam Focused 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 American High-income and Putnam Focused into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American High Income Municipal and Putnam Focused Equity, you can compare the effects of market volatilities on American High-income and Putnam Focused 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 American High-income with a short position of Putnam Focused. Check out your portfolio center. Please also check ongoing floating volatility patterns of American High-income and Putnam Focused.

Diversification Opportunities for American High-income and Putnam Focused

-0.28

Correlation Coefficient

American High-income  Putnam Focused

Very good diversification

The 3 months correlation between American and Putnam is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding American High Income Municipal and Putnam Focused Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Putnam Focused Equity and American High-income 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 American High Income Municipal are associated (or correlated) with Putnam Focused. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Putnam Focused Equity has no effect on the direction of American High-income i.e., American High-income and Putnam Focused go up and down completely randomly.

Pair Corralation between American High-income and Putnam Focused

Assuming the 90 days horizon American High Income Municipal is expected to generate 0.22 times more return on investment than Putnam Focused. However, American High Income Municipal is 4.65 times less risky than Putnam Focused. It trades about 0.09 of its potential returns per unit of risk. Putnam Focused Equity is currently generating about -0.09 per unit of risk. If you would invest  1,510  in American High Income Municipal on December 20, 2024 and sell it today you would earn a total of  18.00  from holding American High Income Municipal or generate 1.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

American High Income Municipal  vs.  Putnam Focused Equity

American High Income

Risk-Adjusted Performance

Modest

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

Putnam Focused Equity

Risk-Adjusted Performance

Very Weak

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

Pair Trading with American High-income and Putnam Focused

The main advantage of trading using opposite American High-income and Putnam Focused positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American High-income position performs unexpectedly, Putnam Focused 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 Putnam Focused will offset losses from the drop in Putnam Focused's long position.

The idea behind American High Income Municipal and Putnam Focused Equity 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.