Correlation Between State Street and Investec Emerging

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

Diversification Opportunities for State Street and Investec Emerging

0.31

Correlation Coefficient

State Street  Investec Emerging

Weak diversification

The 3 months correlation between State and Investec is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding State Street Aggregate and Investec Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investec Emerging Markets 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 Investec Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investec Emerging Markets has no effect on the direction of State Street i.e., State Street and Investec Emerging go up and down completely randomly.

Pair Corralation between State Street and Investec Emerging

Assuming the 90 days horizon State Street Aggregate is expected to generate 0.3 times more return on investment than Investec Emerging. However, State Street Aggregate is 3.3 times less risky than Investec Emerging. It trades about 0.36 of its potential returns per unit of risk. Investec Emerging Markets is currently generating about 0.06 per unit of risk. If you would invest  8,521  in State Street Aggregate on December 5, 2024 and sell it today you would earn a total of  198.00  from holding State Street Aggregate or generate 2.32% 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 Aggregate  vs.  Investec Emerging Markets

State Street Aggregate

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in State Street Aggregate are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong 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.

Investec Emerging Markets

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Investec Emerging Markets are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Investec Emerging 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 Investec Emerging

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

The idea behind State Street Aggregate and Investec Emerging Markets 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.