Correlation Between Schlumberger and State Street

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

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

Diversification Opportunities for Schlumberger and State Street

0.67

Correlation Coefficient

Schlumberger  State Street

Poor diversification

The 3 months correlation between Schlumberger and State is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Schlumberger NV and State Street Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Street Corp and Schlumberger 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 Schlumberger NV are associated (or correlated) with State Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Street Corp has no effect on the direction of Schlumberger i.e., Schlumberger and State Street go up and down completely randomly.

Pair Corralation between Schlumberger and State Street

Considering the 90-day investment horizon Schlumberger NV is expected to under-perform the State Street. But the stock apears to be less risky and, when comparing its historical volatility, Schlumberger NV is 1.09 times less risky than State Street. The stock trades about -0.38 of its potential returns per unit of risk. The State Street Corp is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  7,550  in State Street Corp on January 26, 2024 and sell it today you would lose (121.00) from holding State Street Corp or give up 1.6% of portfolio value over 90 days.

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

Schlumberger NV  vs.  State Street Corp

Schlumberger NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schlumberger NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Schlumberger and State Street

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

The idea behind Schlumberger NV and State Street Corp 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.