Correlation Between State Street and Bank of New York Mellon

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

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

Diversification Opportunities for State Street and Bank of New York Mellon

0.98

Correlation Coefficient

State Street  Bank of New York Mellon

Almost no diversification

The 3 months correlation between State and Bank is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding State Street and The Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of New York Mellon 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 Bank of New York Mellon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of New York Mellon has no effect on the direction of State Street i.e., State Street and Bank of New York Mellon go up and down completely randomly.

Pair Corralation between State Street and Bank of New York Mellon

Assuming the 90 days horizon State Street is expected to generate 1.31 times less return on investment than Bank of New York Mellon. But when comparing it to its historical volatility, State Street is 1.09 times less risky than Bank of New York Mellon. It trades about 0.23 of its potential returns per unit of risk. The Bank of is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  6,132  in The Bank of on September 3, 2024 and sell it today you would earn a total of  1,673  from holding The Bank of or generate 27.28% return on investment over 90 days.

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

State Street  vs.  The Bank of

State Street

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in State Street are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, State Street reported solid returns over the last few months and may actually be approaching a breakup point.

Bank of New York Mellon

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Bank of are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Bank of New York Mellon reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with State Street and Bank of New York Mellon

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

The idea behind State Street and The Bank of 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.