Correlation Between State Street and RTW Venture

Can any of the company-specific risk be diversified away by investing in both State Street and RTW Venture 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 RTW Venture 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 RTW Venture Fund, you can compare the effects of market volatilities on State Street and RTW Venture 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 RTW Venture. Check out your portfolio center. Please also check ongoing floating volatility patterns of State Street and RTW Venture.

Diversification Opportunities for State Street and RTW Venture

0.64

Correlation Coefficient

State Street  RTW Venture

Poor diversification

The 3 months correlation between State and RTW is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding State Street Corp and RTW Venture Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RTW Venture Fund 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 RTW Venture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RTW Venture Fund has no effect on the direction of State Street i.e., State Street and RTW Venture go up and down completely randomly.

Pair Corralation between State Street and RTW Venture

Assuming the 90 days trading horizon State Street Corp is expected to generate 1.31 times more return on investment than RTW Venture. However, State Street is 1.31 times more volatile than RTW Venture Fund. It trades about -0.07 of its potential returns per unit of risk. RTW Venture Fund is currently generating about -0.15 per unit of risk. If you would invest  9,757  in State Street Corp on December 29, 2024 and sell it today you would lose (832.00) from holding State Street Corp or give up 8.53% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

State Street Corp  vs.  RTW Venture Fund

State Street Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days State Street Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

RTW Venture Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days RTW Venture Fund has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with State Street and RTW Venture

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

The idea behind State Street Corp and RTW Venture Fund 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.