Correlation Between Putnam Dynamic and DOW

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Can any of the company-specific risk be diversified away by investing in both Putnam Dynamic and DOW 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 DOW 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 DOW, you can compare the effects of market volatilities on Putnam Dynamic and DOW 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 DOW. Check out your portfolio center. Please also check ongoing floating volatility patterns of Putnam Dynamic and DOW.

Diversification Opportunities for Putnam Dynamic and DOW

0.98
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Putnam and DOW is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Putnam Dynamic Asset and DOW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DOW 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 DOW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DOW has no effect on the direction of Putnam Dynamic i.e., Putnam Dynamic and DOW go up and down completely randomly.
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Pair Corralation between Putnam Dynamic and DOW

Assuming the 90 days horizon Putnam Dynamic is expected to generate 2.07 times less return on investment than DOW. But when comparing it to its historical volatility, Putnam Dynamic Asset is 1.36 times less risky than DOW. It trades about 0.02 of its potential returns per unit of risk. DOW is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,784,491  in DOW on May 9, 2022 and sell it today you would earn a total of  495,856  from holding DOW or generate 17.81% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy99.8%
ValuesDaily Returns

Putnam Dynamic Asset  vs.  DOW

 Performance (%) 
       Timeline  

Putnam Dynamic and DOW Volatility Contrast

   Predicted Return Density   
       Returns  

Putnam Dynamic Asset

Pair trading matchups for Putnam Dynamic

Visteon Corp vs. Putnam Dynamic
Tejon Ranch vs. Putnam Dynamic
Amazon vs. Putnam Dynamic
QK International vs. Putnam Dynamic
Manufactured Housing vs. Putnam Dynamic
Vmware vs. Putnam Dynamic
Oracle vs. Putnam Dynamic
Alphabet vs. Putnam Dynamic
Kennedy-Wilson Holdings vs. Putnam Dynamic
Catalyst Pharm vs. Putnam Dynamic
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Putnam Dynamic as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Putnam Dynamic's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Putnam Dynamic's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Putnam Dynamic Asset.

DOW

Pair trading matchups for DOW

Alphabet vs. DOW
Universal Logis vs. DOW
Vmware vs. DOW
Oracle vs. DOW
Tejon Ranch vs. DOW
QK International vs. DOW
Citigroup vs. DOW
Walker Dunlop vs. DOW
Visteon Corp vs. DOW
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against DOW as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. DOW's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, DOW's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to DOW.

Pair Trading with Putnam Dynamic and DOW

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

Putnam Dynamic Asset

Pair trading matchups for Putnam Dynamic

Alphabet vs. Putnam Dynamic
Kennedy-Wilson Holdings vs. Putnam Dynamic
Manufactured Housing vs. Putnam Dynamic
Vmware vs. Putnam Dynamic
QK International vs. Putnam Dynamic
Universal Logis vs. Putnam Dynamic
Tejon Ranch vs. Putnam Dynamic
Visteon Corp vs. Putnam Dynamic
Amazon vs. Putnam Dynamic
Microsoft Corp vs. Putnam Dynamic
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Putnam Dynamic as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Putnam Dynamic's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Putnam Dynamic's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Putnam Dynamic Asset.
The idea behind Putnam Dynamic Asset and DOW 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.

DOW

Pair trading matchups for DOW

Vmware vs. DOW
Franklin Covey vs. DOW
Oracle vs. DOW
Citigroup vs. DOW
Amgen vs. DOW
Alphabet vs. DOW
Tejon Ranch vs. DOW
Walker Dunlop vs. DOW
Microsoft Corp vs. DOW
Manufactured Housing vs. DOW
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against DOW as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. DOW's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, DOW's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to DOW.
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 Shere Portfolio module to track or share privately all of your investments from the convenience of any device.

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