Correlation Between State Street and California Municipal

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

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

Diversification Opportunities for State Street and California Municipal

0.32

Correlation Coefficient

State Street  California Municipal

Weak diversification

The 3 months correlation between State and California is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding State Street Target and California Municipal Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Municipal 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 Target are associated (or correlated) with California Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Municipal has no effect on the direction of State Street i.e., State Street and California Municipal go up and down completely randomly.

Pair Corralation between State Street and California Municipal

Assuming the 90 days horizon State Street Target is expected to under-perform the California Municipal. In addition to that, State Street is 5.26 times more volatile than California Municipal Portfolio. It trades about -0.02 of its total potential returns per unit of risk. California Municipal Portfolio is currently generating about 0.07 per unit of volatility. If you would invest  1,373  in California Municipal Portfolio on December 21, 2024 and sell it today you would earn a total of  9.00  from holding California Municipal Portfolio or generate 0.66% return on investment over 90 days.

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

State Street Target  vs.  California Municipal Portfolio

State Street Target

Risk-Adjusted Performance

Very Weak

Over the last 90 days State Street Target has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, State Street is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

California Municipal

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in California Municipal Portfolio are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, California Municipal 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 California Municipal

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

The idea behind State Street Target and California Municipal Portfolio 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.