Correlation Between IShares Trust and State Street

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

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

Diversification Opportunities for IShares Trust and State Street

0.8

Correlation Coefficient

IShares Trust  State Street

Very poor diversification

The 3 months correlation between IShares and State is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding iShares Trust and State Street in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Street and IShares Trust 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 iShares Trust 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 IShares Trust i.e., IShares Trust and State Street go up and down completely randomly.

Pair Corralation between IShares Trust and State Street

Assuming the 90 days trading horizon IShares Trust is expected to generate 1.29 times less return on investment than State Street. But when comparing it to its historical volatility, iShares Trust is 1.27 times less risky than State Street. It trades about 0.18 of its potential returns per unit of risk. State Street is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  165,890  in State Street on September 16, 2024 and sell it today you would earn a total of  34,531  from holding State Street or generate 20.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.39%
Values	Daily Returns

iShares Trust   vs.  State Street

iShares Trust

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Trust are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, IShares Trust showed solid returns over the last few months and may actually be approaching a breakup point.

State Street

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in State Street are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, State Street showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares Trust and State Street

The main advantage of trading using opposite IShares Trust and State Street positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Trust 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 iShares Trust 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.