Correlation Between Small Company and State Street

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

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

Diversification Opportunities for Small Company and State Street

0.71

Correlation Coefficient

Small Company  State Street

Poor diversification

The 3 months correlation between Small and State is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Small Pany Growth 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 Small Company 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 Small Pany Growth 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 Small Company i.e., Small Company and State Street go up and down completely randomly.

Pair Corralation between Small Company and State Street

Assuming the 90 days horizon Small Pany Growth is expected to under-perform the State Street. In addition to that, Small Company is 1.67 times more volatile than State Street Smallmid. It trades about -0.08 of its total potential returns per unit of risk. State Street Smallmid is currently generating about -0.08 per unit of volatility. If you would invest  30,599  in State Street Smallmid on December 20, 2024 and sell it today you would lose (1,992) from holding State Street Smallmid or give up 6.51% of portfolio value over 90 days.

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

Small Pany Growth  vs.  State Street Smallmid

Small Pany Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Pany Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

State Street Smallmid

Risk-Adjusted Performance

Very Weak

Over the last 90 days State Street Smallmid has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward-looking signals remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Small Company and State Street

The main advantage of trading using opposite Small Company and State Street positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Company 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 Small Pany Growth 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.