Correlation Between State Street and Sierra Strategic

Can any of the company-specific risk be diversified away by investing in both State Street and Sierra Strategic 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 Sierra Strategic 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 Sierra Strategic Income, you can compare the effects of market volatilities on State Street and Sierra Strategic 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 Sierra Strategic. Check out your portfolio center. Please also check ongoing floating volatility patterns of State Street and Sierra Strategic.

Diversification Opportunities for State Street and Sierra Strategic

-0.33

Correlation Coefficient

State Street  Sierra Strategic

Very good diversification

The 3 months correlation between State and Sierra is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding State Street Premier and Sierra Strategic Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sierra Strategic Income 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 Sierra Strategic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sierra Strategic Income has no effect on the direction of State Street i.e., State Street and Sierra Strategic go up and down completely randomly.

Pair Corralation between State Street and Sierra Strategic

Assuming the 90 days horizon State Street Premier is expected to under-perform the Sierra Strategic. In addition to that, State Street is 10.48 times more volatile than Sierra Strategic Income. It trades about -0.13 of its total potential returns per unit of risk. Sierra Strategic Income is currently generating about 0.04 per unit of volatility. If you would invest  1,984  in Sierra Strategic Income on December 29, 2024 and sell it today you would earn a total of  6.00  from holding Sierra Strategic Income or generate 0.3% return on investment over 90 days.

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

State Street Premier  vs.  Sierra Strategic Income

State Street Premier

Risk-Adjusted Performance

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 latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Sierra Strategic Income

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sierra Strategic Income are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Sierra Strategic 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 Sierra Strategic

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

The idea behind State Street Premier and Sierra Strategic Income 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .