Correlation Between State Street and Pfg American

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

By analyzing existing cross correlation between State Street Premier and Pfg American Funds, you can compare the effects of market volatilities on State Street and Pfg American 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 Pfg American. Check out your portfolio center. Please also check ongoing floating volatility patterns of State Street and Pfg American.

Diversification Opportunities for State Street and Pfg American

0.29

Correlation Coefficient

State Street  Pfg American

Modest diversification

The 3 months correlation between State and Pfg is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding State Street Premier and Pfg American Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pfg American Funds 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 Premier are associated (or correlated) with Pfg American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pfg American Funds has no effect on the direction of State Street i.e., State Street and Pfg American go up and down completely randomly.

Pair Corralation between State Street and Pfg American

Assuming the 90 days horizon State Street Premier is expected to under-perform the Pfg American. In addition to that, State Street is 8.6 times more volatile than Pfg American Funds. It trades about -0.2 of its total potential returns per unit of risk. Pfg American Funds is currently generating about -0.3 per unit of volatility. If you would invest  980.00  in Pfg American Funds on October 4, 2024 and sell it today you would lose (34.00) from holding Pfg American Funds or give up 3.47% of portfolio value over 90 days.

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

State Street Premier  vs.  Pfg American Funds

State Street Premier

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days State Street Premier has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pfg American Funds

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pfg American Funds has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Pfg American 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 Pfg American

The main advantage of trading using opposite State Street and Pfg American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if State Street position performs unexpectedly, Pfg American 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 Pfg American will offset losses from the drop in Pfg American's long position.

The idea behind State Street Premier and Pfg American Funds 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.