Correlation Between State Street and Elfun International

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

Diversification Opportunities for State Street and Elfun International

0.77

Correlation Coefficient

State Street  Elfun International

Poor diversification

The 3 months correlation between State and Elfun is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding State Street Aggregate and Elfun International Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elfun International 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 Elfun International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elfun International has no effect on the direction of State Street i.e., State Street and Elfun International go up and down completely randomly.

Pair Corralation between State Street and Elfun International

Assuming the 90 days horizon State Street Aggregate is expected to under-perform the Elfun International. But the mutual fund apears to be less risky and, when comparing its historical volatility, State Street Aggregate is 2.63 times less risky than Elfun International. The mutual fund trades about -0.17 of its potential returns per unit of risk. The Elfun International Equity is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  2,700  in Elfun International Equity on September 15, 2024 and sell it today you would lose (71.00) from holding Elfun International Equity or give up 2.63% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

State Street Aggregate  vs.  Elfun International Equity

State Street Aggregate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days State Street Aggregate has generated negative risk-adjusted returns adding no value to fund investors. 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.

Elfun International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Elfun International Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental drivers, Elfun International 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 Elfun International

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

The idea behind State Street Aggregate and Elfun International Equity 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.