Correlation Between Putnam Global and Equity Income

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

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

Diversification Opportunities for Putnam Global and Equity Income

0.84

Correlation Coefficient

Putnam Global  Equity Income

Very poor diversification

The 3 months correlation between Putnam and Equity is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Putnam Global Financials and Equity Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Income and Putnam Global 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 Global Financials are associated (or correlated) with Equity Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Income has no effect on the direction of Putnam Global i.e., Putnam Global and Equity Income go up and down completely randomly.

Pair Corralation between Putnam Global and Equity Income

Assuming the 90 days horizon Putnam Global Financials is expected to generate 0.31 times more return on investment than Equity Income. However, Putnam Global Financials is 3.2 times less risky than Equity Income. It trades about -0.35 of its potential returns per unit of risk. Equity Income Fund is currently generating about -0.3 per unit of risk. 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	Strong
Accuracy	100.0%
Values	Daily Returns

Putnam Global Financials  vs.  Equity Income Fund

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.

Equity Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Equity Income Fund 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.

Pair Trading with Putnam Global and Equity Income

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

The idea behind Putnam Global Financials and Equity Income Fund 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 Transaction History module to view history of all your transactions and understand their impact on performance.