Correlation Between State Street and DXC Technology

Can any of the company-specific risk be diversified away by investing in both State Street and DXC Technology 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 DXC Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between State Street Corp and DXC Technology Co, you can compare the effects of market volatilities on State Street and DXC Technology 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 DXC Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of State Street and DXC Technology.

Diversification Opportunities for State Street and DXC Technology

0.58

Correlation Coefficient

State Street  DXC Technology

Very weak diversification

The 3 months correlation between State and DXC is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding State Street Corp and DXC Technology Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DXC Technology 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 Corp are associated (or correlated) with DXC Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DXC Technology has no effect on the direction of State Street i.e., State Street and DXC Technology go up and down completely randomly.

Pair Corralation between State Street and DXC Technology

Assuming the 90 days trading horizon State Street Corp is expected to generate 0.49 times more return on investment than DXC Technology. However, State Street Corp is 2.03 times less risky than DXC Technology. It trades about 0.26 of its potential returns per unit of risk. DXC Technology Co is currently generating about 0.04 per unit of risk. If you would invest  8,180  in State Street Corp on September 12, 2024 and sell it today you would earn a total of  1,730  from holding State Street Corp or generate 21.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

State Street Corp  vs.  DXC Technology Co

State Street Corp

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in State Street Corp are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, State Street unveiled solid returns over the last few months and may actually be approaching a breakup point.

DXC Technology

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in DXC Technology Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, DXC Technology may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with State Street and DXC Technology

The main advantage of trading using opposite State Street and DXC Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if State Street position performs unexpectedly, DXC Technology 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 DXC Technology will offset losses from the drop in DXC Technology's long position.

The idea behind State Street Corp and DXC Technology Co 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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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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.