Correlation Between SCE Trust and State Street
Can any of the company-specific risk be diversified away by investing in both SCE Trust 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 SCE Trust and State Street into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SCE Trust II and State Street, you can compare the effects of market volatilities on SCE Trust 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 SCE Trust with a short position of State Street. Check out your portfolio center. Please also check ongoing floating volatility patterns of SCE Trust and State Street.
Diversification Opportunities for SCE Trust and State Street
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between SCE and State is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding SCE Trust II and State Street in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Street and SCE Trust 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 SCE Trust II 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 has no effect on the direction of SCE Trust i.e., SCE Trust and State Street go up and down completely randomly.
Pair Corralation between SCE Trust and State Street
Assuming the 90 days trading horizon SCE Trust II is expected to generate 1.33 times more return on investment than State Street. However, SCE Trust is 1.33 times more volatile than State Street. It trades about 0.05 of its potential returns per unit of risk. State Street is currently generating about 0.03 per unit of risk. If you would invest 1,635 in SCE Trust II on September 2, 2024 and sell it today you would earn a total of 465.00 from holding SCE Trust II or generate 28.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
SCE Trust II vs. State Street
Performance |
| Timeline |
| SCE Trust II |
| State Street |
SCE Trust and State Street Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SCE Trust and State Street
The main advantage of trading using opposite SCE Trust and State Street positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SCE Trust 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.| SCE Trust vs. SCE Trust IV | SCE Trust vs. SCE Trust III | SCE Trust vs. SCE Trust VI | SCE Trust vs. State Street |
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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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