Correlation Between EQT AB and State Street

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

By analyzing existing cross correlation between EQT AB and State Street, you can compare the effects of market volatilities on EQT AB 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 EQT AB with a short position of State Street. Check out your portfolio center. Please also check ongoing floating volatility patterns of EQT AB and State Street.

Diversification Opportunities for EQT AB and State Street

0.4

Correlation Coefficient

EQT AB  State Street

Very weak diversification

The 3 months correlation between EQT and State is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding EQT AB and State Street in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Street and EQT AB 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 EQT AB 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 EQT AB i.e., EQT AB and State Street go up and down completely randomly.

Pair Corralation between EQT AB and State Street

Assuming the 90 days horizon EQT AB is expected to generate 1.47 times more return on investment than State Street. However, EQT AB is 1.47 times more volatile than State Street. It trades about 0.11 of its potential returns per unit of risk. State Street is currently generating about -0.09 per unit of risk. If you would invest  2,633  in EQT AB on December 27, 2024 and sell it today you would earn a total of  413.00  from holding EQT AB or generate 15.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

EQT AB  vs.  State Street

EQT AB

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EQT AB are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, EQT AB reported solid returns over the last few months and may actually be approaching a breakup point.

State Street

Risk-Adjusted Performance

Very Weak

Over the last 90 days State Street has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with EQT AB and State Street

The main advantage of trading using opposite EQT AB and State Street positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EQT AB 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 EQT AB and State Street 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.