Correlation Between International Equity and Putnam Global

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

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

Diversification Opportunities for International Equity and Putnam Global

0.56

Correlation Coefficient

International Equity  Putnam Global

Very weak diversification

The 3 months correlation between International and Putnam is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Index and Putnam Global Financials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Putnam Global Financials and International 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 International Equity Index are associated (or correlated) with Putnam Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Putnam Global Financials has no effect on the direction of International Equity i.e., International Equity and Putnam Global go up and down completely randomly.

Pair Corralation between International Equity and Putnam Global

Assuming the 90 days horizon International Equity Index is expected to under-perform the Putnam Global. In addition to that, International Equity is 1.61 times more volatile than Putnam Global Financials. It trades about -0.37 of its total potential returns per unit of risk. Putnam Global Financials is currently generating about -0.35 per unit of volatility. If you would invest  1,083  in Putnam Global Financials on October 9, 2024 and sell it today you would lose (46.00) from holding Putnam Global Financials or give up 4.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.0%
Values	Daily Returns

International Equity Index  vs.  Putnam Global Financials

International Equity

Risk-Adjusted Performance

0 of 100

Very Weak

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

Putnam Global Financials

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with International Equity and Putnam Global

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

The idea behind International Equity Index and Putnam Global Financials 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.