Correlation Between Putnam Focused and Overlay Shares

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

By analyzing existing cross correlation between Putnam Focused Large and Overlay Shares Hedged, you can compare the effects of market volatilities on Putnam Focused and Overlay Shares 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 Overlay Shares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Putnam Focused and Overlay Shares.

Diversification Opportunities for Putnam Focused and Overlay Shares

0.58

Correlation Coefficient

Putnam Focused  Overlay Shares

Very weak diversification

The 3 months correlation between Putnam and Overlay is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Putnam Focused Large and Overlay Shares Hedged in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Overlay Shares Hedged 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 Large are associated (or correlated) with Overlay Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Overlay Shares Hedged has no effect on the direction of Putnam Focused i.e., Putnam Focused and Overlay Shares go up and down completely randomly.

Pair Corralation between Putnam Focused and Overlay Shares

Given the investment horizon of 90 days Putnam Focused Large is expected to under-perform the Overlay Shares. In addition to that, Putnam Focused is 1.24 times more volatile than Overlay Shares Hedged. It trades about -0.39 of its total potential returns per unit of risk. Overlay Shares Hedged is currently generating about -0.2 per unit of volatility. If you would invest  3,496  in Overlay Shares Hedged on October 4, 2024 and sell it today you would lose (87.00) from holding Overlay Shares Hedged or give up 2.49% of portfolio value over 90 days.

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

Putnam Focused Large  vs.  Overlay Shares Hedged

Putnam Focused Large

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Putnam Focused Large has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Putnam Focused is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Overlay Shares Hedged

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Overlay Shares Hedged are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong essential indicators, Overlay Shares is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Putnam Focused and Overlay Shares

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

The idea behind Putnam Focused Large and Overlay Shares Hedged 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.