Correlation Between California Bond and Putnam Tax

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

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

Diversification Opportunities for California Bond and Putnam Tax

0.91

Correlation Coefficient

California Bond  Putnam Tax

Almost no diversification

The 3 months correlation between California and Putnam is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding California Bond Fund and Putnam Tax Exempt in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Putnam Tax Exempt and California Bond 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 California Bond Fund are associated (or correlated) with Putnam Tax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Putnam Tax Exempt has no effect on the direction of California Bond i.e., California Bond and Putnam Tax go up and down completely randomly.

Pair Corralation between California Bond and Putnam Tax

Assuming the 90 days horizon California Bond is expected to generate 2.1 times less return on investment than Putnam Tax. In addition to that, California Bond is 1.15 times more volatile than Putnam Tax Exempt. It trades about 0.02 of its total potential returns per unit of risk. Putnam Tax Exempt is currently generating about 0.05 per unit of volatility. If you would invest  773.00  in Putnam Tax Exempt on December 23, 2024 and sell it today you would earn a total of  5.00  from holding Putnam Tax Exempt or generate 0.65% return on investment over 90 days.

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

California Bond Fund  vs.  Putnam Tax Exempt

California Bond

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in California Bond Fund are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, California Bond is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Putnam Tax Exempt

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Putnam Tax Exempt are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Putnam Tax is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with California Bond and Putnam Tax

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

The idea behind California Bond Fund and Putnam Tax Exempt 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.