Correlation Between Putnam Small and Putnam Equity

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

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

Diversification Opportunities for Putnam Small and Putnam Equity

0.62

Correlation Coefficient

Putnam Small  Putnam Equity

Poor diversification

The 3 months correlation between Putnam and Putnam is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Putnam Small Cap and Putnam Equity Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Putnam Equity Income and Putnam Small 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 Small Cap are associated (or correlated) with Putnam Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Putnam Equity Income has no effect on the direction of Putnam Small i.e., Putnam Small and Putnam Equity go up and down completely randomly.

Pair Corralation between Putnam Small and Putnam Equity

Assuming the 90 days horizon Putnam Small Cap is expected to generate 1.5 times more return on investment than Putnam Equity. However, Putnam Small is 1.5 times more volatile than Putnam Equity Income. It trades about 0.05 of its potential returns per unit of risk. Putnam Equity Income is currently generating about 0.0 per unit of risk. If you would invest  5,504  in Putnam Small Cap on September 30, 2024 and sell it today you would earn a total of  433.00  from holding Putnam Small Cap or generate 7.87% return on investment over 90 days.

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

Putnam Small Cap  vs.  Putnam Equity Income

Putnam Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

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

Putnam Equity Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Putnam Equity Income 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 Small and Putnam Equity

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

The idea behind Putnam Small Cap and Putnam Equity Income 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.