Correlation Between State Street and Sixth Street

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

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

Diversification Opportunities for State Street and Sixth Street

0.25

Correlation Coefficient

State Street  Sixth Street

Modest diversification

The 3 months correlation between State and Sixth is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding State Street Corp and Sixth Street Specialty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sixth Street Specialty 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 Corp are associated (or correlated) with Sixth Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sixth Street Specialty has no effect on the direction of State Street i.e., State Street and Sixth Street go up and down completely randomly.

Pair Corralation between State Street and Sixth Street

Considering the 90-day investment horizon State Street is expected to generate 1.36 times less return on investment than Sixth Street. In addition to that, State Street is 1.69 times more volatile than Sixth Street Specialty. It trades about 0.03 of its total potential returns per unit of risk. Sixth Street Specialty is currently generating about 0.07 per unit of volatility. If you would invest  1,509  in Sixth Street Specialty on March 14, 2024 and sell it today you would earn a total of  659.00  from holding Sixth Street Specialty or generate 43.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

State Street Corp  vs.  Sixth Street Specialty

State Street Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days State Street Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, State Street is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Sixth Street Specialty

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sixth Street Specialty are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, Sixth Street is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with State Street and Sixth Street

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

The idea behind State Street Corp and Sixth Street Specialty 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.