Correlation Between IPC MEXICO and State Street

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

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

Diversification Opportunities for IPC MEXICO and State Street

-0.47

Correlation Coefficient

IPC MEXICO  State Street

Very good diversification

The 3 months correlation between IPC and State is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding IPC MEXICO and State Street in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Street and IPC MEXICO 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 IPC MEXICO 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 IPC MEXICO i.e., IPC MEXICO and State Street go up and down completely randomly.

Pair Corralation between IPC MEXICO and State Street

Assuming the 90 days trading horizon IPC MEXICO is expected to generate 8.28 times less return on investment than State Street. But when comparing it to its historical volatility, IPC MEXICO is 4.46 times less risky than State Street. It trades about 0.14 of its potential returns per unit of risk. State Street is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  172,800  in State Street on September 16, 2024 and sell it today you would earn a total of  27,621  from holding State Street or generate 15.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	86.36%
Values	Daily Returns

IPC MEXICO  vs.  State Street

Pair Trading with IPC MEXICO and State Street

The main advantage of trading using opposite IPC MEXICO and State Street positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IPC MEXICO 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 IPC MEXICO 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.

Check out your portfolio center.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.