Correlation Between Putnam Dynamic and Putnam Equity

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

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

Diversification Opportunities for Putnam Dynamic and Putnam Equity

0.67

Correlation Coefficient

Putnam Dynamic  Putnam Equity

Poor diversification

The 3 months correlation between Putnam and Putnam is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Putnam Dynamic Asset and Putnam Equity Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Putnam Equity Income and Putnam Dynamic 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 Dynamic Asset are associated (or correlated) with Putnam Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Putnam Equity Income has no effect on the direction of Putnam Dynamic i.e., Putnam Dynamic and Putnam Equity go up and down completely randomly.

Pair Corralation between Putnam Dynamic and Putnam Equity

Assuming the 90 days horizon Putnam Dynamic Asset is expected to under-perform the Putnam Equity. In addition to that, Putnam Dynamic is 1.5 times more volatile than Putnam Equity Income. It trades about -0.09 of its total potential returns per unit of risk. Putnam Equity Income is currently generating about -0.11 per unit of volatility. If you would invest  3,721  in Putnam Equity Income on October 1, 2024 and sell it today you would lose (247.00) from holding Putnam Equity Income or give up 6.64% of portfolio value over 90 days.

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

Putnam Dynamic Asset  vs.  Putnam Equity Income

Putnam Dynamic Asset

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Putnam Dynamic Asset has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Putnam Equity Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Putnam Equity Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Putnam Dynamic and Putnam Equity

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

The idea behind Putnam Dynamic Asset and Putnam Equity Income 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.