Correlation Between State Street and Northern Trust

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

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

Diversification Opportunities for State Street and Northern Trust

0.96

Correlation Coefficient

State Street  Northern Trust

Almost no diversification

The 3 months correlation between State and Northern is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding State Street and Northern Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Trust 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 Northern Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Trust has no effect on the direction of State Street i.e., State Street and Northern Trust go up and down completely randomly.

Pair Corralation between State Street and Northern Trust

Assuming the 90 days horizon State Street is expected to generate 0.79 times more return on investment than Northern Trust. However, State Street is 1.26 times less risky than Northern Trust. It trades about 0.07 of its potential returns per unit of risk. Northern Trust is currently generating about -0.14 per unit of risk. If you would invest  9,018  in State Street on September 22, 2024 and sell it today you would earn a total of  148.00  from holding State Street or generate 1.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.65%
Values	Daily Returns

State Street  vs.  Northern Trust

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.

Northern Trust

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Trust are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Northern Trust reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with State Street and Northern Trust

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

The idea behind State Street and Northern Trust 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.