Correlation Between Putnam Small and Putnam Global

Can any of the company-specific risk be diversified away by investing in both Putnam Small and Putnam Global 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 Global 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 Global Health, you can compare the effects of market volatilities on Putnam Small and Putnam Global 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 Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of Putnam Small and Putnam Global.

Diversification Opportunities for Putnam Small and Putnam Global

-0.71

Correlation Coefficient

Putnam Small  Putnam Global

Pay attention - limited upside

The 3 months correlation between Putnam and Putnam is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Putnam Small Cap and Putnam Global Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Putnam Global Health 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 Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Putnam Global Health has no effect on the direction of Putnam Small i.e., Putnam Small and Putnam Global go up and down completely randomly.

Pair Corralation between Putnam Small and Putnam Global

Assuming the 90 days horizon Putnam Small Cap is expected to generate 1.73 times more return on investment than Putnam Global. However, Putnam Small is 1.73 times more volatile than Putnam Global Health. It trades about 0.09 of its potential returns per unit of risk. Putnam Global Health is currently generating about -0.29 per unit of risk. If you would invest  1,546  in Putnam Small Cap on September 15, 2024 and sell it today you would earn a total of  99.00  from holding Putnam Small Cap or generate 6.4% return on investment over 90 days.

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

Putnam Small Cap  vs.  Putnam Global Health

Putnam Small Cap

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Putnam Small Cap are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Putnam Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Putnam Global Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Putnam Global Health 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 Global

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

The idea behind Putnam Small Cap and Putnam Global Health 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.