Correlation Between State Street and Great-west Goldman

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

Diversification Opportunities for State Street and Great-west Goldman

0.12

Correlation Coefficient

State Street  Great-west Goldman

Average diversification

The 3 months correlation between State and Great-west is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding State Street Target and Great West Goldman Sachs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great West Goldman 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 Great-west Goldman. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great West Goldman has no effect on the direction of State Street i.e., State Street and Great-west Goldman go up and down completely randomly.

Pair Corralation between State Street and Great-west Goldman

Assuming the 90 days horizon State Street is expected to generate 1.3 times less return on investment than Great-west Goldman. But when comparing it to its historical volatility, State Street Target is 1.8 times less risky than Great-west Goldman. It trades about 0.08 of its potential returns per unit of risk. Great West Goldman Sachs is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  625.00  in Great West Goldman Sachs on December 4, 2024 and sell it today you would earn a total of  224.00  from holding Great West Goldman Sachs or generate 35.84% return on investment over 90 days.

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

State Street Target  vs.  Great West Goldman Sachs

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 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.

Great West Goldman

Risk-Adjusted Performance

Very Weak

Over the last 90 days Great West Goldman Sachs has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward-looking indicators, Great-west Goldman 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 Great-west Goldman

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

The idea behind State Street Target and Great West Goldman Sachs 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .