Correlation Between American Funds and State Street
Can any of the company-specific risk be diversified away by investing in both American Funds 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 American Funds and State Street into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds 2040 and State Street Target, you can compare the effects of market volatilities on American Funds 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 American Funds with a short position of State Street. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and State Street.
Diversification Opportunities for American Funds and State Street
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between American and State is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding American Funds 2040 and State Street Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Street Target and American Funds 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 American Funds 2040 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 Target has no effect on the direction of American Funds i.e., American Funds and State Street go up and down completely randomly.
Pair Corralation between American Funds and State Street
Assuming the 90 days horizon American Funds 2040 is expected to generate 0.96 times more return on investment than State Street. However, American Funds 2040 is 1.04 times less risky than State Street. It trades about 0.1 of its potential returns per unit of risk. State Street Target is currently generating about 0.08 per unit of risk. If you would invest 1,639 in American Funds 2040 on September 1, 2024 and sell it today you would earn a total of 522.00 from holding American Funds 2040 or generate 31.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds 2040 vs. State Street Target
Performance |
| Timeline |
| American Funds 2040 |
| State Street Target |
American Funds and State Street Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and State Street
The main advantage of trading using opposite American Funds and State Street positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds 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.| American Funds vs. American Funds 2035 | American Funds vs. American Funds 2045 | American Funds vs. American Funds 2030 | American Funds vs. American Funds 2050 |
| State Street vs. State Street Target | State Street vs. State Street Target | State Street vs. State Street Target | State Street vs. State Street Target |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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