Correlation Between Small-cap Value and Putnam Convertible

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

By analyzing existing cross correlation between Small Cap Value Fund and Putnam Vertible Securities, you can compare the effects of market volatilities on Small-cap Value and Putnam Convertible 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 Small-cap Value with a short position of Putnam Convertible. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small-cap Value and Putnam Convertible.

Diversification Opportunities for Small-cap Value and Putnam Convertible

0.48

Correlation Coefficient

Small-cap Value  Putnam Convertible

Very weak diversification

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

Pair Corralation between Small-cap Value and Putnam Convertible

Assuming the 90 days horizon Small-cap Value is expected to generate 1.51 times less return on investment than Putnam Convertible. In addition to that, Small-cap Value is 1.65 times more volatile than Putnam Vertible Securities. It trades about 0.06 of its total potential returns per unit of risk. Putnam Vertible Securities is currently generating about 0.14 per unit of volatility. If you would invest  2,609  in Putnam Vertible Securities on October 26, 2024 and sell it today you would earn a total of  45.00  from holding Putnam Vertible Securities or generate 1.72% return on investment over 90 days.

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

Small Cap Value Fund  vs.  Putnam Vertible Securities

Small Cap Value

Risk-Adjusted Performance

0 of 100

Very Weak

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

Putnam Vertible Secu

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Putnam Vertible Securities are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Putnam Convertible is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Small-cap Value and Putnam Convertible

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

The idea behind Small Cap Value Fund and Putnam Vertible Securities 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.