Correlation Between State Street and Equus Total

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

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

Diversification Opportunities for State Street and Equus Total

0.55

Correlation Coefficient

State Street  Equus Total

Very weak diversification

The 3 months correlation between State and Equus is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding State Street and Equus Total Return in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equus Total Return 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 are associated (or correlated) with Equus Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equus Total Return has no effect on the direction of State Street i.e., State Street and Equus Total go up and down completely randomly.

Pair Corralation between State Street and Equus Total

Assuming the 90 days trading horizon State Street is expected to under-perform the Equus Total. But the preferred stock apears to be less risky and, when comparing its historical volatility, State Street is 5.73 times less risky than Equus Total. The preferred stock trades about -0.01 of its potential returns per unit of risk. The Equus Total Return is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  108.00  in Equus Total Return on December 28, 2024 and sell it today you would lose (2.00) from holding Equus Total Return or give up 1.85% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

State Street  vs.  Equus Total Return

State Street

Risk-Adjusted Performance

Very Weak

Over the last 90 days State Street has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, State Street is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Equus Total Return

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Equus Total Return are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Equus Total is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with State Street and Equus Total

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

The idea behind State Street and Equus Total Return 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 Global Correlations module to find global opportunities by holding instruments from different markets.