Correlation Between State Street and Teton Westwood

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

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

Diversification Opportunities for State Street and Teton Westwood

0.97

Correlation Coefficient

State Street  Teton Westwood

Almost no diversification

The 3 months correlation between State and Teton is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding State Street Institutional and Teton Westwood Mighty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Teton Westwood Mighty 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 Institutional are associated (or correlated) with Teton Westwood. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Teton Westwood Mighty has no effect on the direction of State Street i.e., State Street and Teton Westwood go up and down completely randomly.

Pair Corralation between State Street and Teton Westwood

Assuming the 90 days horizon State Street Institutional is expected to under-perform the Teton Westwood. But the mutual fund apears to be less risky and, when comparing its historical volatility, State Street Institutional is 1.1 times less risky than Teton Westwood. The mutual fund trades about -0.09 of its potential returns per unit of risk. The Teton Westwood Mighty is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  1,578  in Teton Westwood Mighty on December 27, 2024 and sell it today you would lose (62.00) from holding Teton Westwood Mighty or give up 3.93% of portfolio value over 90 days.

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

State Street Institutional  vs.  Teton Westwood Mighty

State Street Institu

Risk-Adjusted Performance

Very Weak

Over the last 90 days State Street Institutional has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, State Street is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Teton Westwood Mighty

Risk-Adjusted Performance

Very Weak

Over the last 90 days Teton Westwood Mighty has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong primary indicators, Teton Westwood 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 Teton Westwood

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

The idea behind State Street Institutional and Teton Westwood Mighty 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.