Correlation Between Prudential Short and Putnam High

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

By analyzing existing cross correlation between Prudential Short Duration and Putnam High Yield, you can compare the effects of market volatilities on Prudential Short and Putnam High 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 Prudential Short with a short position of Putnam High. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Short and Putnam High.

Diversification Opportunities for Prudential Short and Putnam High

0.72

Correlation Coefficient

Prudential Short  Putnam High

Poor diversification

The 3 months correlation between Prudential and Putnam is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Short Duration and Putnam High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Putnam High Yield and Prudential Short 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 Prudential Short Duration are associated (or correlated) with Putnam High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Putnam High Yield has no effect on the direction of Prudential Short i.e., Prudential Short and Putnam High go up and down completely randomly.

Pair Corralation between Prudential Short and Putnam High

Assuming the 90 days horizon Prudential Short Duration is expected to generate 0.85 times more return on investment than Putnam High. However, Prudential Short Duration is 1.17 times less risky than Putnam High. It trades about 0.11 of its potential returns per unit of risk. Putnam High Yield is currently generating about 0.02 per unit of risk. If you would invest  828.00  in Prudential Short Duration on December 31, 2024 and sell it today you would earn a total of  10.00  from holding Prudential Short Duration or generate 1.21% return on investment over 90 days.

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

Prudential Short Duration  vs.  Putnam High Yield

Prudential Short Duration

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Short Duration are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Prudential Short is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Putnam High Yield

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Putnam High Yield are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Putnam High is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Prudential Short and Putnam High

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

The idea behind Prudential Short Duration and Putnam High Yield 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.