Correlation Between Putnam Municipal and Invesco Municipal

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

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

Diversification Opportunities for Putnam Municipal and Invesco Municipal

0.68

Correlation Coefficient

Putnam Municipal  Invesco Municipal

Poor diversification

The 3 months correlation between Putnam and Invesco is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Putnam Municipal Opportunities and Invesco Municipal Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Municipal Income and Putnam Municipal 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 Municipal Opportunities are associated (or correlated) with Invesco Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Municipal Income has no effect on the direction of Putnam Municipal i.e., Putnam Municipal and Invesco Municipal go up and down completely randomly.

Pair Corralation between Putnam Municipal and Invesco Municipal

Considering the 90-day investment horizon Putnam Municipal Opportunities is expected to generate 1.22 times more return on investment than Invesco Municipal. However, Putnam Municipal is 1.22 times more volatile than Invesco Municipal Income. It trades about 0.08 of its potential returns per unit of risk. Invesco Municipal Income is currently generating about -0.15 per unit of risk. If you would invest  1,047  in Putnam Municipal Opportunities on September 12, 2024 and sell it today you would earn a total of  15.00  from holding Putnam Municipal Opportunities or generate 1.43% return on investment over 90 days.

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

Putnam Municipal Opportunities  vs.  Invesco Municipal Income

Putnam Municipal Opp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Putnam Municipal Opportunities are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, Putnam Municipal is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Invesco Municipal Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco Municipal Income has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward indicators, Invesco Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Putnam Municipal and Invesco Municipal

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

The idea behind Putnam Municipal Opportunities and Invesco Municipal 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.