Correlation Between Overlay Shares and Putnam Sustainable

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

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

Diversification Opportunities for Overlay Shares and Putnam Sustainable

0.87

Correlation Coefficient

Overlay Shares  Putnam Sustainable

Very poor diversification

The 3 months correlation between Overlay and Putnam is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Overlay Shares Hedged and Putnam Sustainable Leaders in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Putnam Sustainable and Overlay Shares 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 Overlay Shares Hedged are associated (or correlated) with Putnam Sustainable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Putnam Sustainable has no effect on the direction of Overlay Shares i.e., Overlay Shares and Putnam Sustainable go up and down completely randomly.

Pair Corralation between Overlay Shares and Putnam Sustainable

Given the investment horizon of 90 days Overlay Shares is expected to generate 1.38 times less return on investment than Putnam Sustainable. But when comparing it to its historical volatility, Overlay Shares Hedged is 1.36 times less risky than Putnam Sustainable. It trades about 0.1 of its potential returns per unit of risk. Putnam Sustainable Leaders is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,216  in Putnam Sustainable Leaders on October 4, 2024 and sell it today you would earn a total of  1,118  from holding Putnam Sustainable Leaders or generate 50.45% return on investment over 90 days.

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

Overlay Shares Hedged  vs.  Putnam Sustainable Leaders

Overlay Shares Hedged

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Overlay Shares Hedged are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong essential indicators, Overlay Shares is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Putnam Sustainable

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Putnam Sustainable Leaders has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental indicators, Putnam Sustainable is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Overlay Shares and Putnam Sustainable

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

The idea behind Overlay Shares Hedged and Putnam Sustainable Leaders 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.