Correlation Between Overlay Shares and Putnam Focused

Can any of the company-specific risk be diversified away by investing in both Overlay Shares and Putnam Focused 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 Focused 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 Focused Large, you can compare the effects of market volatilities on Overlay Shares and Putnam Focused 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 Focused. Check out your portfolio center. Please also check ongoing floating volatility patterns of Overlay Shares and Putnam Focused.

Diversification Opportunities for Overlay Shares and Putnam Focused

0.58

Correlation Coefficient

Overlay Shares  Putnam Focused

Very weak diversification

The 3 months correlation between Overlay and Putnam is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Overlay Shares Hedged and Putnam Focused Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Putnam Focused Large 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 Focused. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Putnam Focused Large has no effect on the direction of Overlay Shares i.e., Overlay Shares and Putnam Focused go up and down completely randomly.

Pair Corralation between Overlay Shares and Putnam Focused

Given the investment horizon of 90 days Overlay Shares is expected to generate 1.04 times less return on investment than Putnam Focused. But when comparing it to its historical volatility, Overlay Shares Hedged is 1.27 times less risky than Putnam Focused. It trades about 0.1 of its potential returns per unit of risk. Putnam Focused Large is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,740  in Putnam Focused Large on October 4, 2024 and sell it today you would earn a total of  972.00  from holding Putnam Focused Large or generate 35.47% return on investment over 90 days.

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

Overlay Shares Hedged  vs.  Putnam Focused Large

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 Focused Large

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Putnam Focused Large has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Putnam Focused is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Overlay Shares and Putnam Focused

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

The idea behind Overlay Shares Hedged and Putnam Focused Large 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.