Correlation Between Microsoft and Putnam Asia

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

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

Diversification Opportunities for Microsoft and Putnam Asia

-0.57

Correlation Coefficient

Microsoft  Putnam Asia

Excellent diversification

The 3 months correlation between Microsoft and Putnam is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Putnam Asia Pacific in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Putnam Asia Pacific and Microsoft 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 Microsoft are associated (or correlated) with Putnam Asia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Putnam Asia Pacific has no effect on the direction of Microsoft i.e., Microsoft and Putnam Asia go up and down completely randomly.

Pair Corralation between Microsoft and Putnam Asia

Given the investment horizon of 90 days Microsoft is expected to under-perform the Putnam Asia. In addition to that, Microsoft is 3.18 times more volatile than Putnam Asia Pacific. It trades about -0.03 of its total potential returns per unit of risk. Putnam Asia Pacific is currently generating about -0.04 per unit of volatility. If you would invest  1,004  in Putnam Asia Pacific on September 29, 2024 and sell it today you would lose (21.00) from holding Putnam Asia Pacific or give up 2.09% of portfolio value over 90 days.

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

Microsoft  vs.  Putnam Asia Pacific

Microsoft

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Putnam Asia Pacific

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Putnam Asia Pacific has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Putnam Asia is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and Putnam Asia

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

The idea behind Microsoft and Putnam Asia Pacific 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.

Check out your portfolio center.

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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.