Correlation Between State Street and PennantPark Investment

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

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

Diversification Opportunities for State Street and PennantPark Investment

0.83

Correlation Coefficient

State Street  PennantPark Investment

Very poor diversification

The 3 months correlation between State and PennantPark is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding State Street and PennantPark Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennantPark Investment 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 PennantPark Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PennantPark Investment has no effect on the direction of State Street i.e., State Street and PennantPark Investment go up and down completely randomly.

Pair Corralation between State Street and PennantPark Investment

Assuming the 90 days horizon State Street is expected to under-perform the PennantPark Investment. But the stock apears to be less risky and, when comparing its historical volatility, State Street is 1.58 times less risky than PennantPark Investment. The stock trades about -0.05 of its potential returns per unit of risk. The PennantPark Investment is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  648.00  in PennantPark Investment on September 23, 2024 and sell it today you would earn a total of  4.00  from holding PennantPark Investment or generate 0.62% return on investment over 90 days.

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

State Street  vs.  PennantPark Investment

State Street

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in State Street are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, State Street reported solid returns over the last few months and may actually be approaching a breakup point.

PennantPark Investment

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PennantPark Investment are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PennantPark Investment may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with State Street and PennantPark Investment

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

The idea behind State Street and PennantPark Investment 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 Valuation module to check real value of public entities based on technical and fundamental data.