Correlation Between M Large and State Street

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

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

Diversification Opportunities for M Large and State Street

0.71

Correlation Coefficient

M Large  State Street

Poor diversification

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

Pair Corralation between M Large and State Street

Assuming the 90 days horizon M Large Cap is expected to generate 1.09 times more return on investment than State Street. However, M Large is 1.09 times more volatile than State Street Smallmid. It trades about 0.05 of its potential returns per unit of risk. State Street Smallmid is currently generating about 0.05 per unit of risk. If you would invest  2,514  in M Large Cap on October 5, 2024 and sell it today you would earn a total of  821.00  from holding M Large Cap or generate 32.66% return on investment over 90 days.

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

M Large Cap  vs.  State Street Smallmid

M Large Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days M Large Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, M Large 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

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in State Street Smallmid are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward-looking signals, 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 M Large and State Street

The main advantage of trading using opposite M Large and State Street positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if M Large 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 M Large Cap 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.