Correlation Between Davis Financial and Putnam Global

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

By analyzing existing cross correlation between Davis Financial Fund and Putnam Global Financials, you can compare the effects of market volatilities on Davis Financial and Putnam Global 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 Davis Financial with a short position of Putnam Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of Davis Financial and Putnam Global.

Diversification Opportunities for Davis Financial and Putnam Global

0.75

Correlation Coefficient

Davis Financial  Putnam Global

Poor diversification

The 3 months correlation between Davis and Putnam is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Davis Financial Fund and Putnam Global Financials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Putnam Global Financials and Davis Financial 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 Davis Financial Fund are associated (or correlated) with Putnam Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Putnam Global Financials has no effect on the direction of Davis Financial i.e., Davis Financial and Putnam Global go up and down completely randomly.

Pair Corralation between Davis Financial and Putnam Global

Assuming the 90 days horizon Davis Financial Fund is expected to generate 2.44 times more return on investment than Putnam Global. However, Davis Financial is 2.44 times more volatile than Putnam Global Financials. It trades about 0.24 of its potential returns per unit of risk. Putnam Global Financials is currently generating about 0.09 per unit of risk. If you would invest  6,676  in Davis Financial Fund on October 23, 2024 and sell it today you would earn a total of  337.00  from holding Davis Financial Fund or generate 5.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.74%
Values	Daily Returns

Davis Financial Fund  vs.  Putnam Global Financials

Davis Financial

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Financial Fund are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Davis Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Putnam Global Financials

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Davis Financial and Putnam Global

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

The idea behind Davis Financial Fund and Putnam Global Financials 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.