Correlation Between PIMCO RAFI and Putnam Sustainable

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

By analyzing existing cross correlation between PIMCO RAFI Dynamic and Putnam Sustainable Leaders, you can compare the effects of market volatilities on PIMCO RAFI and Putnam Sustainable 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 PIMCO RAFI with a short position of Putnam Sustainable. Check out your portfolio center. Please also check ongoing floating volatility patterns of PIMCO RAFI and Putnam Sustainable.

Diversification Opportunities for PIMCO RAFI and Putnam Sustainable

-0.29

Correlation Coefficient

PIMCO RAFI  Putnam Sustainable

Very good diversification

The 3 months correlation between PIMCO and Putnam is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding PIMCO RAFI Dynamic and Putnam Sustainable Leaders in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Putnam Sustainable and PIMCO RAFI 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 PIMCO RAFI Dynamic are associated (or correlated) with Putnam Sustainable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Putnam Sustainable has no effect on the direction of PIMCO RAFI i.e., PIMCO RAFI and Putnam Sustainable go up and down completely randomly.

Pair Corralation between PIMCO RAFI and Putnam Sustainable

Given the investment horizon of 90 days PIMCO RAFI Dynamic is expected to under-perform the Putnam Sustainable. In addition to that, PIMCO RAFI is 1.01 times more volatile than Putnam Sustainable Leaders. It trades about -0.02 of its total potential returns per unit of risk. Putnam Sustainable Leaders is currently generating about 0.13 per unit of volatility. If you would invest  3,420  in Putnam Sustainable Leaders on September 12, 2024 and sell it today you would earn a total of  50.00  from holding Putnam Sustainable Leaders or generate 1.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

PIMCO RAFI Dynamic  vs.  Putnam Sustainable Leaders

PIMCO RAFI Dynamic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PIMCO RAFI Dynamic has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, PIMCO RAFI is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Putnam Sustainable

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Putnam Sustainable Leaders are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental indicators, Putnam Sustainable is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with PIMCO RAFI and Putnam Sustainable

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

The idea behind PIMCO RAFI Dynamic and Putnam Sustainable Leaders 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.