Correlation Between State Street and Sound Shore

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

By analyzing existing cross correlation between State Street Aggregate and Sound Shore Fund, you can compare the effects of market volatilities on State Street and Sound Shore 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 Sound Shore. Check out your portfolio center. Please also check ongoing floating volatility patterns of State Street and Sound Shore.

Diversification Opportunities for State Street and Sound Shore

0.76

Correlation Coefficient

State Street  Sound Shore

Poor diversification

The 3 months correlation between State and Sound is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding State Street Aggregate and Sound Shore Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sound Shore Fund 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 Aggregate are associated (or correlated) with Sound Shore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sound Shore Fund has no effect on the direction of State Street i.e., State Street and Sound Shore go up and down completely randomly.

Pair Corralation between State Street and Sound Shore

Assuming the 90 days horizon State Street is expected to generate 2.97 times less return on investment than Sound Shore. But when comparing it to its historical volatility, State Street Aggregate is 2.83 times less risky than Sound Shore. It trades about 0.18 of its potential returns per unit of risk. Sound Shore Fund is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  3,624  in Sound Shore Fund on May 22, 2025 and sell it today you would earn a total of  328.00  from holding Sound Shore Fund or generate 9.05% return on investment over 90 days.

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

State Street Aggregate  vs.  Sound Shore Fund

State Street Aggregate

Risk-Adjusted Performance

Good

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

Sound Shore Fund

Risk-Adjusted Performance

Good

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

Pair Trading with State Street and Sound Shore

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

The idea behind State Street Aggregate and Sound Shore Fund 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.