Correlation Between State Street and Rationalpier

Can any of the company-specific risk be diversified away by investing in both State Street and Rationalpier 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 Rationalpier 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 Rationalpier 88 Convertible, you can compare the effects of market volatilities on State Street and Rationalpier 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 Rationalpier. Check out your portfolio center. Please also check ongoing floating volatility patterns of State Street and Rationalpier.

Diversification Opportunities for State Street and Rationalpier

0.8

Correlation Coefficient

State Street  Rationalpier

Very poor diversification

The 3 months correlation between State and Rationalpier is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding State Street Target and Rationalpier 88 Convertible in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rationalpier 88 Conv 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 Rationalpier. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rationalpier 88 Conv has no effect on the direction of State Street i.e., State Street and Rationalpier go up and down completely randomly.

Pair Corralation between State Street and Rationalpier

Assuming the 90 days horizon State Street Target is expected to generate 1.3 times more return on investment than Rationalpier. However, State Street is 1.3 times more volatile than Rationalpier 88 Convertible. It trades about 0.09 of its potential returns per unit of risk. Rationalpier 88 Convertible is currently generating about 0.12 per unit of risk. If you would invest  1,627  in State Street Target on September 16, 2024 and sell it today you would earn a total of  53.00  from holding State Street Target or generate 3.26% return on investment over 90 days.

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

State Street Target  vs.  Rationalpier 88 Convertible

State Street Target

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in State Street Target are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. 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.

Rationalpier 88 Conv

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rationalpier 88 Convertible are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Rationalpier 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 Rationalpier

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

The idea behind State Street Target and Rationalpier 88 Convertible 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 .