Correlation Between NYSE Composite and Putnam Dynamic

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

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

Diversification Opportunities for NYSE Composite and Putnam Dynamic

0.48

Correlation Coefficient

NYSE Composite  Putnam Dynamic

Very weak diversification

The 3 months correlation between NYSE and Putnam is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Putnam Dynamic Asset in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Putnam Dynamic Asset and NYSE Composite 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 NYSE Composite are associated (or correlated) with Putnam Dynamic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Putnam Dynamic Asset has no effect on the direction of NYSE Composite i.e., NYSE Composite and Putnam Dynamic go up and down completely randomly.

Pair Corralation between NYSE Composite and Putnam Dynamic

Assuming the 90 days trading horizon NYSE Composite is expected to generate 1.02 times more return on investment than Putnam Dynamic. However, NYSE Composite is 1.02 times more volatile than Putnam Dynamic Asset. It trades about 0.09 of its potential returns per unit of risk. Putnam Dynamic Asset is currently generating about 0.06 per unit of risk. If you would invest  1,476,437  in NYSE Composite on December 2, 2024 and sell it today you would earn a total of  526,382  from holding NYSE Composite or generate 35.65% return on investment over 90 days.

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

NYSE Composite  vs.  Putnam Dynamic Asset

Pair Trading with NYSE Composite and Putnam Dynamic

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

The idea behind NYSE Composite and Putnam Dynamic Asset 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.