Correlation Between Ford and Putnam Multicap

Can any of the company-specific risk be diversified away by investing in both Ford and Putnam Multicap 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 Multicap 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 Multicap Core, you can compare the effects of market volatilities on Ford and Putnam Multicap 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 Multicap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Putnam Multicap.

Diversification Opportunities for Ford and Putnam Multicap

0.6

Correlation Coefficient

Ford  Putnam Multicap

Poor diversification

The 3 months correlation between Ford and Putnam is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Putnam Multicap Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Putnam Multicap Core 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 Multicap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Putnam Multicap Core has no effect on the direction of Ford i.e., Ford and Putnam Multicap go up and down completely randomly.

Pair Corralation between Ford and Putnam Multicap

Taking into account the 90-day investment horizon Ford is expected to generate 2.67 times less return on investment than Putnam Multicap. In addition to that, Ford is 3.04 times more volatile than Putnam Multicap Core. It trades about 0.02 of its total potential returns per unit of risk. Putnam Multicap Core is currently generating about 0.16 per unit of volatility. If you would invest  3,451  in Putnam Multicap Core on September 4, 2024 and sell it today you would earn a total of  1,191  from holding Putnam Multicap Core or generate 34.51% return on investment over 90 days.

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

Ford Motor  vs.  Putnam Multicap Core

Ford Motor

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Ford is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Putnam Multicap Core

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Putnam Multicap Core are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Putnam Multicap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ford and Putnam Multicap

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

The idea behind Ford Motor and Putnam Multicap Core 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.