Correlation Between Northern Small and Putnman Retirement

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

By analyzing existing cross correlation between Northern Small Cap and Putnman Retirement Ready, you can compare the effects of market volatilities on Northern Small and Putnman Retirement 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 Northern Small with a short position of Putnman Retirement. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Small and Putnman Retirement.

Diversification Opportunities for Northern Small and Putnman Retirement

0.67

Correlation Coefficient

Northern Small  Putnman Retirement

Poor diversification

The 3 months correlation between Northern and Putnman is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Northern Small Cap and Putnman Retirement Ready in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Putnman Retirement Ready and Northern Small 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 Northern Small Cap are associated (or correlated) with Putnman Retirement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Putnman Retirement Ready has no effect on the direction of Northern Small i.e., Northern Small and Putnman Retirement go up and down completely randomly.

Pair Corralation between Northern Small and Putnman Retirement

Assuming the 90 days horizon Northern Small Cap is expected to under-perform the Putnman Retirement. In addition to that, Northern Small is 2.6 times more volatile than Putnman Retirement Ready. It trades about -0.49 of its total potential returns per unit of risk. Putnman Retirement Ready is currently generating about -0.32 per unit of volatility. If you would invest  2,555  in Putnman Retirement Ready on December 11, 2024 and sell it today you would lose (78.00) from holding Putnman Retirement Ready or give up 3.05% of portfolio value over 90 days.

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

Northern Small Cap  vs.  Putnman Retirement Ready

Northern Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Northern Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Putnman Retirement Ready

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Northern Small and Putnman Retirement

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

The idea behind Northern Small Cap and Putnman Retirement Ready 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.