Correlation Between Caixabank and State Street
Can any of the company-specific risk be diversified away by investing in both Caixabank and State Street 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 Caixabank and State Street into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caixabank SA ADR and State Street Corp, you can compare the effects of market volatilities on Caixabank and State Street 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 Caixabank with a short position of State Street. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caixabank and State Street.
Diversification Opportunities for Caixabank and State Street
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Caixabank and State is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Caixabank SA ADR and State Street Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Street Corp and Caixabank 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 Caixabank SA ADR are associated (or correlated) with State Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Street Corp has no effect on the direction of Caixabank i.e., Caixabank and State Street go up and down completely randomly.
Pair Corralation between Caixabank and State Street
Assuming the 90 days horizon Caixabank SA ADR is expected to generate 2.6 times more return on investment than State Street. However, Caixabank is 2.6 times more volatile than State Street Corp. It trades about 0.09 of its potential returns per unit of risk. State Street Corp is currently generating about 0.1 per unit of risk. If you would invest 124.00 in Caixabank SA ADR on February 6, 2024 and sell it today you would earn a total of 41.00 from holding Caixabank SA ADR or generate 33.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Caixabank SA ADR vs. State Street Corp
Performance |
| Timeline |
| Caixabank SA ADR |
| State Street Corp |
Caixabank and State Street Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Caixabank and State Street
The main advantage of trading using opposite Caixabank and State Street positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caixabank position performs unexpectedly, State Street 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 State Street will offset losses from the drop in State Street's long position.The idea behind Caixabank SA ADR and State Street Corp 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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