Correlation Between State Street and First Trust

Can any of the company-specific risk be diversified away by investing in both State Street and First Trust 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 State Street and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between State Street Premier and First Trust Intermediate, you can compare the effects of market volatilities on State Street and First Trust 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 State Street with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of State Street and First Trust.

Diversification Opportunities for State Street and First Trust

0.98

Correlation Coefficient

State Street  First Trust

Almost no diversification

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

Pair Corralation between State Street and First Trust

Assuming the 90 days horizon State Street Premier is expected to generate 2.15 times more return on investment than First Trust. However, State Street is 2.15 times more volatile than First Trust Intermediate. It trades about 0.36 of its potential returns per unit of risk. First Trust Intermediate is currently generating about 0.34 per unit of risk. If you would invest  10,440  in State Street Premier on April 28, 2025 and sell it today you would earn a total of  2,431  from holding State Street Premier or generate 23.29% return on investment over 90 days.

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

State Street Premier  vs.  First Trust Intermediate

State Street Premier

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in State Street Premier are ranked lower than 28 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, State Street showed solid returns over the last few months and may actually be approaching a breakup point.

First Trust Intermediate

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Intermediate are ranked lower than 26 (%) of all funds and portfolios of funds over the last 90 days. Despite nearly fragile basic indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with State Street and First Trust

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

The idea behind State Street Premier and First Trust Intermediate 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.