Correlation Between State Street and BlackRock

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

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

Diversification Opportunities for State Street and BlackRock

0.7

Correlation Coefficient

State Street  BlackRock

Poor diversification

The 3 months correlation between State and BlackRock is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding State Street and BlackRock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BlackRock 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 BlackRock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BlackRock has no effect on the direction of State Street i.e., State Street and BlackRock go up and down completely randomly.

Pair Corralation between State Street and BlackRock

Assuming the 90 days trading horizon State Street is expected to generate 1.25 times less return on investment than BlackRock. In addition to that, State Street is 1.04 times more volatile than BlackRock. It trades about 0.18 of its total potential returns per unit of risk. BlackRock is currently generating about 0.23 per unit of volatility. If you would invest  1,665,143  in BlackRock on September 16, 2024 and sell it today you would earn a total of  457,057  from holding BlackRock or generate 27.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

State Street  vs.  BlackRock

State Street

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in State Street are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, State Street showed solid returns over the last few months and may actually be approaching a breakup point.

BlackRock

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BlackRock are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward-looking signals, BlackRock showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with State Street and BlackRock

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

The idea behind State Street and BlackRock 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.