Correlation Between State Street and Versatile Bond

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

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

Diversification Opportunities for State Street and Versatile Bond

0.74

Correlation Coefficient

State Street  Versatile Bond

Poor diversification

The 3 months correlation between State and Versatile is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding State Street Target and Versatile Bond Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Versatile Bond Portfolio 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 Target are associated (or correlated) with Versatile Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Versatile Bond Portfolio has no effect on the direction of State Street i.e., State Street and Versatile Bond go up and down completely randomly.

Pair Corralation between State Street and Versatile Bond

Assuming the 90 days horizon State Street Target is expected to under-perform the Versatile Bond. In addition to that, State Street is 2.73 times more volatile than Versatile Bond Portfolio. It trades about -0.07 of its total potential returns per unit of risk. Versatile Bond Portfolio is currently generating about -0.09 per unit of volatility. If you would invest  6,418  in Versatile Bond Portfolio on September 30, 2024 and sell it today you would lose (43.00) from holding Versatile Bond Portfolio or give up 0.67% of portfolio value over 90 days.

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

State Street Target  vs.  Versatile Bond Portfolio

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 basic indicators, State Street is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Versatile Bond Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with State Street and Versatile Bond

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

The idea behind State Street Target and Versatile Bond Portfolio 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .