Correlation Between Putnam Focused and American High-income

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

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

Diversification Opportunities for Putnam Focused and American High-income

0.31

Correlation Coefficient

Putnam Focused  American High-income

Weak diversification

The 3 months correlation between Putnam and American is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Putnam Focused Equity and American High Income Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American High Income and Putnam Focused 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 Focused Equity are associated (or correlated) with American High-income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American High Income has no effect on the direction of Putnam Focused i.e., Putnam Focused and American High-income go up and down completely randomly.

Pair Corralation between Putnam Focused and American High-income

Assuming the 90 days horizon Putnam Focused Equity is expected to under-perform the American High-income. In addition to that, Putnam Focused is 3.23 times more volatile than American High Income Municipal. It trades about -0.17 of its total potential returns per unit of risk. American High Income Municipal is currently generating about -0.29 per unit of volatility. If you would invest  1,558  in American High Income Municipal on October 12, 2024 and sell it today you would lose (28.00) from holding American High Income Municipal or give up 1.8% of portfolio value over 90 days.

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

Putnam Focused Equity  vs.  American High Income Municipal

Putnam Focused Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Putnam Focused Equity 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.

American High Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American High Income Municipal has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, American High-income 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 Focused and American High-income

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

The idea behind Putnam Focused Equity and American High Income Municipal 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.