Correlation Between State Street and H FARM

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

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

Diversification Opportunities for State Street and H FARM

-0.9

Correlation Coefficient

State Street  H FARM

Pay attention - limited upside

The 3 months correlation between State and 5JQ is -0.9. Overlapping area represents the amount of risk that can be diversified away by holding State Street and H FARM SPA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on H FARM SPA 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 H FARM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of H FARM SPA has no effect on the direction of State Street i.e., State Street and H FARM go up and down completely randomly.

Pair Corralation between State Street and H FARM

Assuming the 90 days horizon State Street is expected to generate 0.36 times more return on investment than H FARM. However, State Street is 2.75 times less risky than H FARM. It trades about 0.18 of its potential returns per unit of risk. H FARM SPA is currently generating about -0.02 per unit of risk. If you would invest  6,600  in State Street on September 22, 2024 and sell it today you would earn a total of  2,566  from holding State Street or generate 38.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	99.24%
Values	Daily Returns

State Street  vs.  H FARM SPA

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.

H FARM SPA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days H FARM SPA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with State Street and H FARM

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

The idea behind State Street and H FARM SPA 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.