Correlation Between Ford and Putnam Multi

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

By analyzing existing cross correlation between Ford Motor and Putnam Multi Cap Value, you can compare the effects of market volatilities on Ford and Putnam Multi 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 Ford with a short position of Putnam Multi. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Putnam Multi.

Diversification Opportunities for Ford and Putnam Multi

0.86

Correlation Coefficient

Ford  Putnam Multi

Very poor diversification

The 3 months correlation between Ford and Putnam is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Putnam Multi Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Putnam Multi Cap and Ford 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 Ford Motor are associated (or correlated) with Putnam Multi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Putnam Multi Cap has no effect on the direction of Ford i.e., Ford and Putnam Multi go up and down completely randomly.

Pair Corralation between Ford and Putnam Multi

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Putnam Multi. In addition to that, Ford is 1.28 times more volatile than Putnam Multi Cap Value. It trades about -0.27 of its total potential returns per unit of risk. Putnam Multi Cap Value is currently generating about -0.18 per unit of volatility. If you would invest  2,129  in Putnam Multi Cap Value on October 10, 2024 and sell it today you would lose (92.00) from holding Putnam Multi Cap Value or give up 4.32% of portfolio value over 90 days.

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

Ford Motor  vs.  Putnam Multi Cap Value

Ford Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ford Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Putnam Multi Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Putnam Multi Cap Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Ford and Putnam Multi

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

The idea behind Ford Motor and Putnam Multi Cap Value 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.