Correlation Between Putnam Municipal and General American

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

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

Diversification Opportunities for Putnam Municipal and General American

0.24

Correlation Coefficient

Putnam Municipal  General American

Modest diversification

The 3 months correlation between Putnam and General is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Putnam Municipal Opportunities and General American Investors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General American Inv and Putnam Municipal 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 Municipal Opportunities are associated (or correlated) with General American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General American Inv has no effect on the direction of Putnam Municipal i.e., Putnam Municipal and General American go up and down completely randomly.

Pair Corralation between Putnam Municipal and General American

Considering the 90-day investment horizon Putnam Municipal Opportunities is expected to generate 1.07 times more return on investment than General American. However, Putnam Municipal is 1.07 times more volatile than General American Investors. It trades about 0.06 of its potential returns per unit of risk. General American Investors is currently generating about -0.02 per unit of risk. If you would invest  991.00  in Putnam Municipal Opportunities on December 28, 2024 and sell it today you would earn a total of  23.00  from holding Putnam Municipal Opportunities or generate 2.32% return on investment over 90 days.

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

Putnam Municipal Opportunities  vs.  General American Investors

Putnam Municipal Opp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Putnam Municipal Opportunities are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, Putnam Municipal is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

General American Inv

Risk-Adjusted Performance

Very Weak

Over the last 90 days General American Investors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, General American is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Putnam Municipal and General American

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

The idea behind Putnam Municipal Opportunities and General American Investors 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.