Correlation Between Great West and State Farm

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

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

Diversification Opportunities for Great West and State Farm

0.04

Correlation Coefficient

Great West  State Farm

Significant diversification

The 3 months correlation between Great and State is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Great West Loomis Sayles and State Farm Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Farm Municipal and Great West 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 Great West Loomis Sayles 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 Municipal has no effect on the direction of Great West i.e., Great West and State Farm go up and down completely randomly.

Pair Corralation between Great West and State Farm

Assuming the 90 days horizon Great West Loomis Sayles is expected to generate 6.04 times more return on investment than State Farm. However, Great West is 6.04 times more volatile than State Farm Municipal. It trades about 0.08 of its potential returns per unit of risk. State Farm Municipal is currently generating about -0.04 per unit of risk. If you would invest  3,836  in Great West Loomis Sayles on September 17, 2024 and sell it today you would earn a total of  220.00  from holding Great West Loomis Sayles or generate 5.74% return on investment over 90 days.

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

Great West Loomis Sayles  vs.  State Farm Municipal

Great West Loomis

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Great West Loomis Sayles are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Great West is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

State Farm Municipal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days State Farm Municipal has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental 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 Great West and State Farm

The main advantage of trading using opposite Great West and State Farm positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Great West 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 Great West Loomis Sayles and State Farm Municipal 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.