Correlation Between State Street and State Farm

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

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

Diversification Opportunities for State Street and State Farm

0.92

Correlation Coefficient

State Street  State Farm

Almost no diversification

The 3 months correlation between State and State is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding State Street Institutional and State Farm Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Farm Balanced and State Street 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 State Street Institutional 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 Balanced has no effect on the direction of State Street i.e., State Street and State Farm go up and down completely randomly.

Pair Corralation between State Street and State Farm

Assuming the 90 days horizon State Street Institutional is expected to generate 1.75 times more return on investment than State Farm. However, State Street is 1.75 times more volatile than State Farm Balanced. It trades about 0.03 of its potential returns per unit of risk. State Farm Balanced is currently generating about 0.04 per unit of risk. If you would invest  1,598  in State Street Institutional on October 24, 2024 and sell it today you would earn a total of  203.00  from holding State Street Institutional or generate 12.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.74%
Values	Daily Returns

State Street Institutional  vs.  State Farm Balanced

State Street Institu

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days State Street Institutional has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, State Street is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

State Farm Balanced

Risk-Adjusted Performance

0 of 100

Very Weak

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

The main advantage of trading using opposite State Street and State Farm positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if State Street 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 State Street Institutional and State Farm Balanced 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.