Correlation Between Financial Industries and State Street
Can any of the company-specific risk be diversified away by investing in both Financial Industries 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 Financial Industries and State Street into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Financial Industries Fund and State Street Target, you can compare the effects of market volatilities on Financial Industries 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 Financial Industries with a short position of State Street. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Industries and State Street.
Diversification Opportunities for Financial Industries and State Street
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Financial and State is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Financial Industries 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 Financial Industries 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 Financial Industries 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 Financial Industries i.e., Financial Industries and State Street go up and down completely randomly.
Pair Corralation between Financial Industries and State Street
Assuming the 90 days horizon Financial Industries Fund is expected to generate 3.44 times more return on investment than State Street. However, Financial Industries is 3.44 times more volatile than State Street Target. It trades about 0.29 of its potential returns per unit of risk. State Street Target is currently generating about 0.31 per unit of risk. If you would invest 1,900 in Financial Industries Fund on September 1, 2024 and sell it today you would earn a total of 228.00 from holding Financial Industries Fund or generate 12.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Financial Industries Fund vs. State Street Target
Performance |
| Timeline |
| Financial Industries |
| State Street Target |
Financial Industries and State Street Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financial Industries and State Street
The main advantage of trading using opposite Financial Industries and State Street positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Industries 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 Financial Industries 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.
| State Street vs. Firsthand Alternative Energy | State Street vs. Gmo Resources | State Street vs. Dreyfus Natural Resources | State Street vs. World Energy Fund |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
Other Complementary Tools
| Sign In To Macroaxis Sign in to explore Macroaxis' wealth optimization platform and fintech modules | |
| Content Syndication Quickly integrate customizable finance content to your own investment portal | |
| Portfolio Diagnostics Use generated alerts and portfolio events aggregator to diagnose current holdings | |
| Bonds Directory Find actively traded corporate debentures issued by US companies | |
| Fundamental Analysis View fundamental data based on most recent published financial statements |