Correlation Between Multisector Bond and State Street

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

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

Diversification Opportunities for Multisector Bond and State Street

0.69

Correlation Coefficient

Multisector Bond  State Street

Poor diversification

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

Pair Corralation between Multisector Bond and State Street

Assuming the 90 days horizon Multisector Bond Sma is expected to under-perform the State Street. But the mutual fund apears to be less risky and, when comparing its historical volatility, Multisector Bond Sma is 3.82 times less risky than State Street. The mutual fund trades about -0.04 of its potential returns per unit of risk. The State Street Smallmid is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  28,967  in State Street Smallmid on October 24, 2024 and sell it today you would earn a total of  2,979  from holding State Street Smallmid or generate 10.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.78%
Values	Daily Returns

Multisector Bond Sma  vs.  State Street Smallmid

Multisector Bond Sma

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Multisector Bond Sma are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Multisector Bond is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

State Street Smallmid

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in State Street Smallmid are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, State Street may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Multisector Bond and State Street

The main advantage of trading using opposite Multisector Bond and State Street positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Multisector Bond 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 Multisector Bond Sma and State Street Smallmid 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.