Correlation Between State Street and Gabelli Multimedia

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

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

Diversification Opportunities for State Street and Gabelli Multimedia

0.43

Correlation Coefficient

State Street  Gabelli Multimedia

Very weak diversification

The 3 months correlation between State and Gabelli is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding State Street and The Gabelli Multimedia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Gabelli Multimedia 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 Gabelli Multimedia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Gabelli Multimedia has no effect on the direction of State Street i.e., State Street and Gabelli Multimedia go up and down completely randomly.

Pair Corralation between State Street and Gabelli Multimedia

Assuming the 90 days trading horizon State Street is expected to generate 0.81 times more return on investment than Gabelli Multimedia. However, State Street is 1.23 times less risky than Gabelli Multimedia. It trades about -0.07 of its potential returns per unit of risk. The Gabelli Multimedia is currently generating about -0.08 per unit of risk. If you would invest  2,465  in State Street on October 4, 2024 and sell it today you would lose (65.00) from holding State Street or give up 2.64% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

State Street  vs.  The Gabelli Multimedia

State Street

Risk-Adjusted Performance

0 of 100

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.

The Gabelli Multimedia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Gabelli Multimedia has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Gabelli Multimedia is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with State Street and Gabelli Multimedia

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

The idea behind State Street and The Gabelli Multimedia 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.