Correlation Between Commonwealth Global and State Street
Can any of the company-specific risk be diversified away by investing in both Commonwealth Global 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 Commonwealth Global and State Street into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Commonwealth Global Fund and State Street Target, you can compare the effects of market volatilities on Commonwealth Global 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 Commonwealth Global with a short position of State Street. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commonwealth Global and State Street.
Diversification Opportunities for Commonwealth Global and State Street
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Commonwealth and State is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Global Fund 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 Commonwealth Global 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 Commonwealth Global Fund 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 Commonwealth Global i.e., Commonwealth Global and State Street go up and down completely randomly.
Pair Corralation between Commonwealth Global and State Street
Assuming the 90 days horizon Commonwealth Global Fund is expected to under-perform the State Street. But the mutual fund apears to be less risky and, when comparing its historical volatility, Commonwealth Global Fund is 1.15 times less risky than State Street. The mutual fund trades about -0.03 of its potential returns per unit of risk. The State Street Target is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 1,600 in State Street Target on December 3, 2024 and sell it today you would earn a total of 10.00 from holding State Street Target or generate 0.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Commonwealth Global Fund vs. State Street Target
Performance |
| Timeline |
| Commonwealth Global |
| State Street Target |
Commonwealth Global and State Street Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Commonwealth Global and State Street
The main advantage of trading using opposite Commonwealth Global and State Street positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commonwealth Global 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 Commonwealth Global Fund and State Street Target 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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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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