Correlation Between Putnam Short and Largecap

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

By analyzing existing cross correlation between Putnam Short Duration and Largecap Sp 500, you can compare the effects of market volatilities on Putnam Short and Largecap 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 Short with a short position of Largecap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Putnam Short and Largecap.

Diversification Opportunities for Putnam Short and Largecap

0.69

Correlation Coefficient

Putnam Short  Largecap

Poor diversification

The 3 months correlation between Putnam and Largecap is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Putnam Short Duration and Largecap Sp 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Largecap Sp 500 and Putnam Short 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 Short Duration are associated (or correlated) with Largecap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Largecap Sp 500 has no effect on the direction of Putnam Short i.e., Putnam Short and Largecap go up and down completely randomly.

Pair Corralation between Putnam Short and Largecap

Assuming the 90 days horizon Putnam Short is expected to generate 4.0 times less return on investment than Largecap. But when comparing it to its historical volatility, Putnam Short Duration is 8.17 times less risky than Largecap. It trades about 0.22 of its potential returns per unit of risk. Largecap Sp 500 is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,283  in Largecap Sp 500 on September 23, 2024 and sell it today you would earn a total of  571.00  from holding Largecap Sp 500 or generate 25.01% return on investment over 90 days.

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

Putnam Short Duration  vs.  Largecap Sp 500

Putnam Short Duration

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Putnam Short Duration are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Putnam Short is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Largecap Sp 500

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Largecap Sp 500 are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Largecap 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 Short and Largecap

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

The idea behind Putnam Short Duration and Largecap Sp 500 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.