Correlation Between Ford and Putnam Sustainable

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

Diversification Opportunities for Ford and Putnam Sustainable

0.56

Correlation Coefficient

Ford  Putnam Sustainable

Very weak diversification

The 3 months correlation between Ford and Putnam is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor 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 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 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 Ford i.e., Ford and Putnam Sustainable go up and down completely randomly.

Pair Corralation between Ford and Putnam Sustainable

Taking into account the 90-day investment horizon Ford is expected to generate 3.81 times less return on investment than Putnam Sustainable. In addition to that, Ford is 2.51 times more volatile than Putnam Sustainable Future. It trades about 0.02 of its total potential returns per unit of risk. Putnam Sustainable Future is currently generating about 0.22 per unit of volatility. If you would invest  2,194  in Putnam Sustainable Future on September 4, 2024 and sell it today you would earn a total of  256.00  from holding Putnam Sustainable Future or generate 11.67% return on investment over 90 days.

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

Ford Motor  vs.  Putnam Sustainable Future

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 Sustainable Future

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Putnam Sustainable Future are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Putnam Sustainable may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ford and Putnam Sustainable

The main advantage of trading using opposite Ford and Putnam Sustainable positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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 Ford Motor 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.