Correlation Between ARK Innovation and Putnam Sustainable

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

By analyzing existing cross correlation between ARK Innovation ETF and Putnam Sustainable Future, you can compare the effects of market volatilities on ARK Innovation and Putnam Sustainable 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 ARK Innovation with a short position of Putnam Sustainable. Check out your portfolio center. Please also check ongoing floating volatility patterns of ARK Innovation and Putnam Sustainable.

Diversification Opportunities for ARK Innovation and Putnam Sustainable

0.46

Correlation Coefficient

ARK Innovation  Putnam Sustainable

Very weak diversification

The 3 months correlation between ARK and Putnam is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding ARK Innovation ETF and Putnam Sustainable Future in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Putnam Sustainable Future and ARK Innovation 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 ARK Innovation ETF are associated (or correlated) with Putnam Sustainable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Putnam Sustainable Future has no effect on the direction of ARK Innovation i.e., ARK Innovation and Putnam Sustainable go up and down completely randomly.

Pair Corralation between ARK Innovation and Putnam Sustainable

Given the investment horizon of 90 days ARK Innovation ETF is expected to generate 2.35 times more return on investment than Putnam Sustainable. However, ARK Innovation is 2.35 times more volatile than Putnam Sustainable Future. It trades about 0.1 of its potential returns per unit of risk. Putnam Sustainable Future is currently generating about -0.01 per unit of risk. If you would invest  5,477  in ARK Innovation ETF on October 22, 2024 and sell it today you would earn a total of  484.00  from holding ARK Innovation ETF or generate 8.84% return on investment over 90 days.

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

ARK Innovation ETF  vs.  Putnam Sustainable Future

ARK Innovation ETF

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ARK Innovation ETF are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite weak forward-looking signals, ARK Innovation disclosed solid returns over the last few months and may actually be approaching a breakup point.

Putnam Sustainable Future

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Putnam Sustainable Future are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Putnam Sustainable is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with ARK Innovation and Putnam Sustainable

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

The idea behind ARK Innovation ETF and Putnam Sustainable Future 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .