Correlation Between Morningstar Defensive and State Street

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

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

Diversification Opportunities for Morningstar Defensive and State Street

0.6

Correlation Coefficient

Morningstar Defensive  State Street

Poor diversification

The 3 months correlation between Morningstar and State is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar Defensive Bond and State Street Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Street Target and Morningstar Defensive 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 Morningstar Defensive Bond 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 Target has no effect on the direction of Morningstar Defensive i.e., Morningstar Defensive and State Street go up and down completely randomly.

Pair Corralation between Morningstar Defensive and State Street

Assuming the 90 days horizon Morningstar Defensive is expected to generate 9.25 times less return on investment than State Street. But when comparing it to its historical volatility, Morningstar Defensive Bond is 1.65 times less risky than State Street. It trades about 0.04 of its potential returns per unit of risk. State Street Target is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,144  in State Street Target on September 17, 2024 and sell it today you would earn a total of  11.00  from holding State Street Target or generate 0.96% return on investment over 90 days.

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

Morningstar Defensive Bond  vs.  State Street Target

Morningstar Defensive

Risk-Adjusted Performance

0 of 100

Very Weak

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

State Street Target

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Morningstar Defensive and State Street

The main advantage of trading using opposite Morningstar Defensive and State Street positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Morningstar Defensive 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 Morningstar Defensive Bond and State Street Target 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.