Correlation Between Putnam Focused and Principal Quality

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

Diversification Opportunities for Putnam Focused and Principal Quality

0.7

Correlation Coefficient

Putnam Focused  Principal Quality

Poor diversification

The 3 months correlation between Putnam and Principal is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Putnam Focused Large and Principal Quality ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Quality ETF 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 Principal Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Quality ETF has no effect on the direction of Putnam Focused i.e., Putnam Focused and Principal Quality go up and down completely randomly.

Pair Corralation between Putnam Focused and Principal Quality

Given the investment horizon of 90 days Putnam Focused is expected to generate 1.14 times less return on investment than Principal Quality. But when comparing it to its historical volatility, Putnam Focused Large is 1.31 times less risky than Principal Quality. It trades about 0.15 of its potential returns per unit of risk. Principal Quality ETF is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  5,166  in Principal Quality ETF on September 24, 2024 and sell it today you would earn a total of  2,094  from holding Principal Quality ETF or generate 40.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.66%
Values	Daily Returns

Putnam Focused Large  vs.  Principal Quality ETF

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.

Principal Quality ETF

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Quality ETF are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Principal Quality is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Putnam Focused and Principal Quality

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

The idea behind Putnam Focused Large and Principal Quality ETF 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.