Correlation Between State Street and Invesco Plc

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

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

Diversification Opportunities for State Street and Invesco Plc

0.87

Correlation Coefficient

State Street  Invesco Plc

Very poor diversification

The 3 months correlation between State and Invesco is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding State Street Corp and Invesco Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Plc 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 Corp are associated (or correlated) with Invesco Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Plc has no effect on the direction of State Street i.e., State Street and Invesco Plc go up and down completely randomly.

Pair Corralation between State Street and Invesco Plc

Considering the 90-day investment horizon State Street Corp is expected to generate 0.6 times more return on investment than Invesco Plc. However, State Street Corp is 1.66 times less risky than Invesco Plc. It trades about 0.27 of its potential returns per unit of risk. Invesco Plc is currently generating about 0.04 per unit of risk. If you would invest  8,747  in State Street Corp on August 7, 2024 and sell it today you would earn a total of  544.00  from holding State Street Corp or generate 6.22% return on investment over 90 days.

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

State Street Corp  vs.  Invesco Plc

State Street Corp

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in State Street Corp are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, State Street unveiled solid returns over the last few months and may actually be approaching a breakup point.

Invesco Plc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Plc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Invesco Plc showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with State Street and Invesco Plc

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

The idea behind State Street Corp and Invesco Plc 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.