Correlation Between Investor and State Street
Can any of the company-specific risk be diversified away by investing in both Investor 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 Investor and State Street into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Investor AB and State Street Corp, you can compare the effects of market volatilities on Investor 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 Investor with a short position of State Street. Check out your portfolio center. Please also check ongoing floating volatility patterns of Investor and State Street.
Diversification Opportunities for Investor and State Street
0.18 | Correlation Coefficient |
Average diversification
The 3 months correlation between Investor and State is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Investor AB 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 Investor 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 Investor AB 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 Investor i.e., Investor and State Street go up and down completely randomly.
Pair Corralation between Investor and State Street
Assuming the 90 days horizon Investor AB is expected to under-perform the State Street. In addition to that, Investor is 1.14 times more volatile than State Street Corp. It trades about -0.33 of its total potential returns per unit of risk. State Street Corp is currently generating about -0.09 per unit of volatility. If you would invest 7,525 in State Street Corp on January 21, 2024 and sell it today you would lose (188.00) from holding State Street Corp or give up 2.5% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Investor AB vs. State Street Corp
Performance |
| Timeline |
| Investor AB |
| State Street Corp |
Investor and State Street Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Investor and State Street
The main advantage of trading using opposite Investor and State Street positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Investor 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 Investor AB 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.| State Street vs. Northern Trust | State Street vs. Franklin Resources | State Street vs. Invesco Plc | State Street vs. T Rowe Price |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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