Correlation Between State Street and Pax Large

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

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

Diversification Opportunities for State Street and Pax Large

0.77

Correlation Coefficient

State Street  Pax Large

Poor diversification

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

Pair Corralation between State Street and Pax Large

Assuming the 90 days horizon State Street Core is expected to generate 1.24 times more return on investment than Pax Large. However, State Street is 1.24 times more volatile than Pax Large Cap. It trades about -0.12 of its potential returns per unit of risk. Pax Large Cap is currently generating about -0.16 per unit of risk. If you would invest  8,461  in State Street Core on December 19, 2024 and sell it today you would lose (1,558) from holding State Street Core or give up 18.41% of portfolio value over 90 days.

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

State Street Core  vs.  Pax Large Cap

State Street Core

Risk-Adjusted Performance

Very Weak

Over the last 90 days State Street Core 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 April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pax Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pax Large Cap 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 essential indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with State Street and Pax Large

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

The idea behind State Street Core and Pax Large Cap 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.