Correlation Between Gateway Equity and State Farm

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

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

Diversification Opportunities for Gateway Equity and State Farm

-0.61

Correlation Coefficient

Gateway Equity  State Farm

Excellent diversification

The 3 months correlation between Gateway and State is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Gateway Equity Call and State Farm International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Farm International and Gateway Equity 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 Gateway Equity Call are associated (or correlated) with State Farm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Farm International has no effect on the direction of Gateway Equity i.e., Gateway Equity and State Farm go up and down completely randomly.

Pair Corralation between Gateway Equity and State Farm

Assuming the 90 days horizon Gateway Equity Call is expected to generate 1.3 times more return on investment than State Farm. However, Gateway Equity is 1.3 times more volatile than State Farm International. It trades about 0.25 of its potential returns per unit of risk. State Farm International is currently generating about -0.1 per unit of risk. If you would invest  1,912  in Gateway Equity Call on September 17, 2024 and sell it today you would earn a total of  125.00  from holding Gateway Equity Call or generate 6.54% return on investment over 90 days.

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

Gateway Equity Call  vs.  State Farm International

Gateway Equity Call

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gateway Equity Call are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Gateway Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

State Farm International

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Gateway Equity and State Farm

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

The idea behind Gateway Equity Call and State Farm International 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.