Correlation Between State Street and SPDR Series

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

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

Diversification Opportunities for State Street and SPDR Series

0.72

Correlation Coefficient

State Street  SPDR Series

Poor diversification

The 3 months correlation between State and SPDR is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding State Street and SPDR Series Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Series 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 SPDR Series. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Series Trust has no effect on the direction of State Street i.e., State Street and SPDR Series go up and down completely randomly.

Pair Corralation between State Street and SPDR Series

Assuming the 90 days trading horizon State Street is expected to generate 1.01 times more return on investment than SPDR Series. However, State Street is 1.01 times more volatile than SPDR Series Trust. It trades about 0.18 of its potential returns per unit of risk. SPDR Series Trust is currently generating about 0.11 per unit of risk. If you would invest  165,890  in State Street on September 15, 2024 and sell it today you would earn a total of  34,531  from holding State Street or generate 20.82% return on investment over 90 days.

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

State Street  vs.  SPDR Series Trust

State Street

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in State Street are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, State Street showed solid returns over the last few months and may actually be approaching a breakup point.

SPDR Series Trust

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Series Trust are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SPDR Series showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with State Street and SPDR Series

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

The idea behind State Street and SPDR Series 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.

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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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.