Correlation Between Putnam Tax and Federated Short-term

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

By analyzing existing cross correlation between Putnam Tax Exempt and Federated Short Term Income, you can compare the effects of market volatilities on Putnam Tax and Federated Short-term 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 Putnam Tax with a short position of Federated Short-term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Putnam Tax and Federated Short-term.

Diversification Opportunities for Putnam Tax and Federated Short-term

0.66

Correlation Coefficient

Putnam Tax  Federated Short-term

Poor diversification

The 3 months correlation between Putnam and Federated is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Putnam Tax Exempt and Federated Short Term Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Short Term and Putnam Tax 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 Putnam Tax Exempt are associated (or correlated) with Federated Short-term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Short Term has no effect on the direction of Putnam Tax i.e., Putnam Tax and Federated Short-term go up and down completely randomly.

Pair Corralation between Putnam Tax and Federated Short-term

Assuming the 90 days horizon Putnam Tax Exempt is expected to under-perform the Federated Short-term. In addition to that, Putnam Tax is 1.91 times more volatile than Federated Short Term Income. It trades about -0.02 of its total potential returns per unit of risk. Federated Short Term Income is currently generating about 0.21 per unit of volatility. If you would invest  837.00  in Federated Short Term Income on December 27, 2024 and sell it today you would earn a total of  15.00  from holding Federated Short Term Income or generate 1.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Putnam Tax Exempt  vs.  Federated Short Term Income

Putnam Tax Exempt

Risk-Adjusted Performance

Very Weak

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

Federated Short Term

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Short Term Income are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, Federated Short-term is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Putnam Tax and Federated Short-term

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

The idea behind Putnam Tax Exempt and Federated Short Term Income 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.