Correlation Between Select Sector and State Street

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

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

Diversification Opportunities for Select Sector and State Street

0.64

Correlation Coefficient

Select Sector  State Street

Poor diversification

The 3 months correlation between Select and State is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding The Select Sector and State Street in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Street and Select Sector 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 The Select Sector are associated (or correlated) with State Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Street has no effect on the direction of Select Sector i.e., Select Sector and State Street go up and down completely randomly.

Pair Corralation between Select Sector and State Street

Assuming the 90 days trading horizon The Select Sector is expected to under-perform the State Street. But the etf apears to be less risky and, when comparing its historical volatility, The Select Sector is 2.21 times less risky than State Street. The etf trades about -0.06 of its potential returns per unit of risk. The State Street is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  172,800  in State Street on September 16, 2024 and sell it today you would earn a total of  27,621  from holding State Street or generate 15.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.0%
Values	Daily Returns

The Select Sector  vs.  State Street

Select Sector

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Select Sector are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Select Sector is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with Select Sector and State Street

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

The idea behind The Select Sector and State Street 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.