Correlation Between Putnam Equity and Putnam Small

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

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

Diversification Opportunities for Putnam Equity and Putnam Small

0.94

Correlation Coefficient

Putnam Equity  Putnam Small

Almost no diversification

The 3 months correlation between Putnam and Putnam is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Putnam Equity Income and Putnam Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Putnam Small Cap and Putnam Equity 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 Equity Income are associated (or correlated) with Putnam Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Putnam Small Cap has no effect on the direction of Putnam Equity i.e., Putnam Equity and Putnam Small go up and down completely randomly.

Pair Corralation between Putnam Equity and Putnam Small

Assuming the 90 days horizon Putnam Equity is expected to generate 1.75 times less return on investment than Putnam Small. But when comparing it to its historical volatility, Putnam Equity Income is 1.89 times less risky than Putnam Small. It trades about 0.16 of its potential returns per unit of risk. Putnam Small Cap is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,733  in Putnam Small Cap on September 4, 2024 and sell it today you would earn a total of  187.00  from holding Putnam Small Cap or generate 10.79% return on investment over 90 days.

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

Putnam Equity Income  vs.  Putnam Small Cap

Putnam Equity Income

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Putnam Equity Income are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Putnam Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Putnam Small Cap

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Putnam Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly weak basic indicators, Putnam Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Putnam Equity and Putnam Small

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

The idea behind Putnam Equity Income and Putnam Small Cap 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.