Correlation Between Putnam Convertible and American Funds

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

By analyzing existing cross correlation between Putnam Convertible Securities and American Funds Smallcap, you can compare the effects of market volatilities on Putnam Convertible and American Funds 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 Convertible with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Putnam Convertible and American Funds.

Diversification Opportunities for Putnam Convertible and American Funds

0.98

Correlation Coefficient

Putnam Convertible  American Funds

Almost no diversification

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

Pair Corralation between Putnam Convertible and American Funds

Assuming the 90 days horizon Putnam Convertible is expected to generate 1.55 times less return on investment than American Funds. But when comparing it to its historical volatility, Putnam Convertible Securities is 1.45 times less risky than American Funds. It trades about 0.18 of its potential returns per unit of risk. American Funds Smallcap is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  6,570  in American Funds Smallcap on May 6, 2025 and sell it today you would earn a total of  636.00  from holding American Funds Smallcap or generate 9.68% return on investment over 90 days.

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

Putnam Convertible Securities  vs.  American Funds Smallcap

Putnam Convertible

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Putnam Convertible Securities are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Putnam Convertible is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Funds Smallcap

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds Smallcap are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, American Funds may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Putnam Convertible and American Funds

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

The idea behind Putnam Convertible Securities and American Funds Smallcap 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.