Correlation Between Balanced Fund and Putnam Multicap

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

By analyzing existing cross correlation between Balanced Fund Investor and Putnam Multicap Core, you can compare the effects of market volatilities on Balanced Fund and Putnam Multicap 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 Balanced Fund with a short position of Putnam Multicap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Balanced Fund and Putnam Multicap.

Diversification Opportunities for Balanced Fund and Putnam Multicap

0.84

Correlation Coefficient

Balanced Fund  Putnam Multicap

Very poor diversification

The 3 months correlation between Balanced and Putnam is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Balanced Fund Investor and Putnam Multicap Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Putnam Multicap Core and Balanced Fund 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 Balanced Fund Investor are associated (or correlated) with Putnam Multicap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Putnam Multicap Core has no effect on the direction of Balanced Fund i.e., Balanced Fund and Putnam Multicap go up and down completely randomly.

Pair Corralation between Balanced Fund and Putnam Multicap

Assuming the 90 days horizon Balanced Fund is expected to generate 2.49 times less return on investment than Putnam Multicap. But when comparing it to its historical volatility, Balanced Fund Investor is 1.59 times less risky than Putnam Multicap. It trades about 0.13 of its potential returns per unit of risk. Putnam Multicap Core is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  4,223  in Putnam Multicap Core on August 31, 2024 and sell it today you would earn a total of  394.00  from holding Putnam Multicap Core or generate 9.33% return on investment over 90 days.

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

Balanced Fund Investor  vs.  Putnam Multicap Core

Balanced Fund Investor

Risk-Adjusted Performance

9 of 100

Modest

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

Putnam Multicap Core

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Putnam Multicap Core are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Putnam Multicap may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Balanced Fund and Putnam Multicap

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

The idea behind Balanced Fund Investor and Putnam Multicap Core 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.