Correlation Between Oil Equipment and Putnam Retirement

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

By analyzing existing cross correlation between Oil Equipment Services and Putnam Retirement Ready, you can compare the effects of market volatilities on Oil Equipment and Putnam Retirement 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 Oil Equipment with a short position of Putnam Retirement. Check out your portfolio center. Please also check ongoing floating volatility patterns of Oil Equipment and Putnam Retirement.

Diversification Opportunities for Oil Equipment and Putnam Retirement

0.27

Correlation Coefficient

Oil Equipment  Putnam Retirement

Modest diversification

The 3 months correlation between Oil and Putnam is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Oil Equipment Services and Putnam Retirement Ready in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Putnam Retirement Ready and Oil Equipment 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 Oil Equipment Services are associated (or correlated) with Putnam Retirement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Putnam Retirement Ready has no effect on the direction of Oil Equipment i.e., Oil Equipment and Putnam Retirement go up and down completely randomly.

Pair Corralation between Oil Equipment and Putnam Retirement

Assuming the 90 days horizon Oil Equipment Services is expected to generate 6.1 times more return on investment than Putnam Retirement. However, Oil Equipment is 6.1 times more volatile than Putnam Retirement Ready. It trades about 0.06 of its potential returns per unit of risk. Putnam Retirement Ready is currently generating about 0.24 per unit of risk. If you would invest  11,094  in Oil Equipment Services on March 4, 2024 and sell it today you would earn a total of  255.00  from holding Oil Equipment Services or generate 2.3% return on investment over 90 days.

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

Oil Equipment Services  vs.  Putnam Retirement Ready

Oil Equipment Services

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Oil Equipment Services are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Oil Equipment showed solid returns over the last few months and may actually be approaching a breakup point.

Putnam Retirement Ready

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Putnam Retirement Ready are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Putnam Retirement is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Oil Equipment and Putnam Retirement

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

The idea behind Oil Equipment Services and Putnam Retirement Ready 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.