Correlation Between Elfun International and State Street

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

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

Diversification Opportunities for Elfun International and State Street

0.69

Correlation Coefficient

Elfun International  State Street

Poor diversification

The 3 months correlation between Elfun and State is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Elfun International Equity and State Street Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Street Equity and Elfun International 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 Elfun International Equity 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 Equity has no effect on the direction of Elfun International i.e., Elfun International and State Street go up and down completely randomly.

Pair Corralation between Elfun International and State Street

Assuming the 90 days horizon Elfun International is expected to generate 1.84 times less return on investment than State Street. In addition to that, Elfun International is 1.11 times more volatile than State Street Equity. It trades about 0.06 of its total potential returns per unit of risk. State Street Equity is currently generating about 0.12 per unit of volatility. If you would invest  28,457  in State Street Equity on December 4, 2024 and sell it today you would earn a total of  16,069  from holding State Street Equity or generate 56.47% return on investment over 90 days.

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

Elfun International Equity  vs.  State Street Equity

Elfun International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Elfun International Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental drivers, Elfun International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

State Street Equity

Risk-Adjusted Performance

Very Weak

Over the last 90 days State Street Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, State Street is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Elfun International and State Street

The main advantage of trading using opposite Elfun International and State Street positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Elfun International 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 Elfun International Equity and State Street Equity 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..