Correlation Between Putnam Floating and First Trust

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

By analyzing existing cross correlation between Putnam Floating Rate and First Trust Short, you can compare the effects of market volatilities on Putnam Floating and First Trust 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 Floating with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Putnam Floating and First Trust.

Diversification Opportunities for Putnam Floating and First Trust

0.9

Correlation Coefficient

Putnam Floating  First Trust

Almost no diversification

The 3 months correlation between Putnam and First is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Putnam Floating Rate and First Trust Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Short and Putnam Floating 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 Floating Rate are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Short has no effect on the direction of Putnam Floating i.e., Putnam Floating and First Trust go up and down completely randomly.

Pair Corralation between Putnam Floating and First Trust

Assuming the 90 days horizon Putnam Floating Rate is expected to generate 0.49 times more return on investment than First Trust. However, Putnam Floating Rate is 2.03 times less risky than First Trust. It trades about 0.31 of its potential returns per unit of risk. First Trust Short is currently generating about 0.11 per unit of risk. If you would invest  799.00  in Putnam Floating Rate on September 15, 2024 and sell it today you would earn a total of  2.00  from holding Putnam Floating Rate or generate 0.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

Putnam Floating Rate  vs.  First Trust Short

Putnam Floating Rate

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Putnam Floating Rate are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, Putnam Floating is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

First Trust Short

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Short are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, First Trust 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 Floating and First Trust

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

The idea behind Putnam Floating Rate and First Trust Short 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.