Correlation Between Dow Jones and George Putnam

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Can any of the company-specific risk be diversified away by investing in both Dow Jones and George Putnam 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 Dow Jones and George Putnam into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and George Putnam Fund, you can compare the effects of market volatilities on Dow Jones and George Putnam 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 Dow Jones with a short position of George Putnam. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and George Putnam.

Diversification Opportunities for Dow Jones and George Putnam

0.94
  Correlation Coefficient

Almost no diversification

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

Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.11 times more return on investment than George Putnam. However, Dow Jones is 1.11 times more volatile than George Putnam Fund. It trades about 0.25 of its potential returns per unit of risk. George Putnam Fund is currently generating about -0.07 per unit of risk. If you would invest  4,238,757  in Dow Jones Industrial on August 29, 2024 and sell it today you would earn a total of  233,449  from holding Dow Jones Industrial or generate 5.51% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Dow Jones Industrial  vs.  George Putnam Fund

 Performance 
       Timeline  

Dow Jones and George Putnam Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Dow Jones and George Putnam

The main advantage of trading using opposite Dow Jones and George Putnam positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, George Putnam 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 George Putnam will offset losses from the drop in George Putnam's long position.
The idea behind Dow Jones Industrial and George Putnam Fund 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 Anywhere module to track or share privately all of your investments from the convenience of any device.

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