Correlation Between FS KKR and Putnam Municipal

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

By analyzing existing cross correlation between FS KKR Capital and Putnam Municipal Opportunities, you can compare the effects of market volatilities on FS KKR and Putnam Municipal 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 FS KKR with a short position of Putnam Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of FS KKR and Putnam Municipal.

Diversification Opportunities for FS KKR and Putnam Municipal

-0.37

Correlation Coefficient

FS KKR  Putnam Municipal

Very good diversification

The 3 months correlation between FSK and Putnam is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding FS KKR Capital and Putnam Municipal Opportunities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Putnam Municipal Opp and FS KKR 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 FS KKR Capital are associated (or correlated) with Putnam Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Putnam Municipal Opp has no effect on the direction of FS KKR i.e., FS KKR and Putnam Municipal go up and down completely randomly.

Pair Corralation between FS KKR and Putnam Municipal

Considering the 90-day investment horizon FS KKR Capital is expected to generate 0.94 times more return on investment than Putnam Municipal. However, FS KKR Capital is 1.06 times less risky than Putnam Municipal. It trades about 0.22 of its potential returns per unit of risk. Putnam Municipal Opportunities is currently generating about -0.05 per unit of risk. If you would invest  1,995  in FS KKR Capital on October 22, 2024 and sell it today you would earn a total of  231.00  from holding FS KKR Capital or generate 11.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

FS KKR Capital  vs.  Putnam Municipal Opportunities

FS KKR Capital

Risk-Adjusted Performance

17 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FS KKR Capital are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, FS KKR may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Putnam Municipal Opp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Putnam Municipal Opportunities has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Putnam Municipal is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with FS KKR and Putnam Municipal

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

The idea behind FS KKR Capital and Putnam Municipal Opportunities 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.