Correlation Between State Street and Vista Oil
Can any of the company-specific risk be diversified away by investing in both State Street and Vista Oil 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 Vista Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between State Street and Vista Oil Gas, you can compare the effects of market volatilities on State Street and Vista Oil 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 Vista Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of State Street and Vista Oil.
Diversification Opportunities for State Street and Vista Oil
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between State and Vista is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding State Street and Vista Oil Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vista Oil Gas 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 are associated (or correlated) with Vista Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vista Oil Gas has no effect on the direction of State Street i.e., State Street and Vista Oil go up and down completely randomly.
Pair Corralation between State Street and Vista Oil
Assuming the 90 days trading horizon State Street is expected to generate 1.39 times less return on investment than Vista Oil. But when comparing it to its historical volatility, State Street is 2.07 times less risky than Vista Oil. It trades about 0.14 of its potential returns per unit of risk. Vista Oil Gas is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 56,000 in Vista Oil Gas on September 23, 2024 and sell it today you would earn a total of 51,190 from holding Vista Oil Gas or generate 91.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.63% |
| Values | Daily Returns |
State Street vs. Vista Oil Gas
Performance |
| Timeline |
| State Street |
| Vista Oil Gas |
State Street and Vista Oil Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with State Street and Vista Oil
The main advantage of trading using opposite State Street and Vista Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if State Street position performs unexpectedly, Vista Oil 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 Vista Oil will offset losses from the drop in Vista Oil's long position.The idea behind State Street and Vista Oil Gas 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.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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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