Correlation Between Deutsche Bank and State Street

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

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

Diversification Opportunities for Deutsche Bank and State Street

0.07

Correlation Coefficient

Deutsche Bank  State Street

Significant diversification

The 3 months correlation between Deutsche and State is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Deutsche Bank AG and State Street Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Street Corp and Deutsche Bank 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 Deutsche Bank AG 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 Corp has no effect on the direction of Deutsche Bank i.e., Deutsche Bank and State Street go up and down completely randomly.

Pair Corralation between Deutsche Bank and State Street

Allowing for the 90-day total investment horizon Deutsche Bank AG is expected to generate 1.22 times more return on investment than State Street. However, Deutsche Bank is 1.22 times more volatile than State Street Corp. It trades about 0.1 of its potential returns per unit of risk. State Street Corp is currently generating about -0.02 per unit of risk. If you would invest  1,648  in Deutsche Bank AG on September 24, 2024 and sell it today you would earn a total of  52.00  from holding Deutsche Bank AG or generate 3.16% return on investment over 90 days.

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

Deutsche Bank AG  vs.  State Street Corp

Deutsche Bank AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Deutsche Bank AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Deutsche Bank is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

State Street Corp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in State Street Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, State Street may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Deutsche Bank and State Street

The main advantage of trading using opposite Deutsche Bank and State Street positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Deutsche Bank 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 Deutsche Bank AG and State Street Corp 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.