Correlation Between State Street and Fifth Third

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

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

Diversification Opportunities for State Street and Fifth Third

0.63

Correlation Coefficient

State Street  Fifth Third

Poor diversification

The 3 months correlation between State and Fifth is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding State Street and Fifth Third Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fifth Third Bancorp 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 Fifth Third. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fifth Third Bancorp has no effect on the direction of State Street i.e., State Street and Fifth Third go up and down completely randomly.

Pair Corralation between State Street and Fifth Third

Assuming the 90 days trading horizon State Street is expected to generate 0.56 times more return on investment than Fifth Third. However, State Street is 1.78 times less risky than Fifth Third. It trades about -0.14 of its potential returns per unit of risk. Fifth Third Bancorp is currently generating about -0.12 per unit of risk. If you would invest  2,442  in State Street on September 27, 2024 and sell it today you would lose (107.00) from holding State Street or give up 4.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

State Street  vs.  Fifth Third Bancorp

State Street

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days State Street has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, State Street is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Fifth Third Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fifth Third Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Preferred Stock's fundamental drivers remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with State Street and Fifth Third

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

The idea behind State Street and Fifth Third Bancorp 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.