Correlation Between Putnam Equity and Putnam Small

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

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

Diversification Opportunities for Putnam Equity and Putnam Small

0.79

Correlation Coefficient

Putnam Equity  Putnam Small

Poor diversification

The 3 months correlation between Putnam and Putnam is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Putnam Equity Income and Putnam Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Putnam Small Cap and Putnam Equity 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 Equity Income are associated (or correlated) with Putnam Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Putnam Small Cap has no effect on the direction of Putnam Equity i.e., Putnam Equity and Putnam Small go up and down completely randomly.

Pair Corralation between Putnam Equity and Putnam Small

Assuming the 90 days horizon Putnam Equity Income is expected to under-perform the Putnam Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Putnam Equity Income is 1.42 times less risky than Putnam Small. The mutual fund trades about -0.15 of its potential returns per unit of risk. The Putnam Small Cap is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  1,772  in Putnam Small Cap on October 6, 2024 and sell it today you would lose (77.00) from holding Putnam Small Cap or give up 4.35% of portfolio value over 90 days.

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

Putnam Equity Income  vs.  Putnam Small Cap

Putnam Equity Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Putnam Equity Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Putnam Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Putnam Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Putnam Small 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 Equity and Putnam Small

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

The idea behind Putnam Equity Income and Putnam Small Cap 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.