Correlation Between State Street and Enhanced Fixed

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

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

Diversification Opportunities for State Street and Enhanced Fixed

0.88

Correlation Coefficient

State Street  Enhanced Fixed

Very poor diversification

The 3 months correlation between State and Enhanced is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding State Street Aggregate and Enhanced Fixed Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enhanced Fixed 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 Aggregate are associated (or correlated) with Enhanced Fixed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enhanced Fixed Income has no effect on the direction of State Street i.e., State Street and Enhanced Fixed go up and down completely randomly.

Pair Corralation between State Street and Enhanced Fixed

Assuming the 90 days horizon State Street Aggregate is expected to generate 1.0 times more return on investment than Enhanced Fixed. However, State Street Aggregate is 1.0 times less risky than Enhanced Fixed. It trades about 0.17 of its potential returns per unit of risk. Enhanced Fixed Income is currently generating about 0.14 per unit of risk. If you would invest  8,661  in State Street Aggregate on December 21, 2024 and sell it today you would earn a total of  257.00  from holding State Street Aggregate or generate 2.97% return on investment over 90 days.

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

State Street Aggregate  vs.  Enhanced Fixed Income

State Street Aggregate

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in State Street Aggregate are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, State Street is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Enhanced Fixed Income

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Enhanced Fixed Income are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Enhanced Fixed 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 Enhanced Fixed

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

The idea behind State Street Aggregate and Enhanced Fixed 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.