Correlation Between State Street and Cleveland Cliffs

Can any of the company-specific risk be diversified away by investing in both State Street and Cleveland Cliffs 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 Cleveland Cliffs 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 Cleveland Cliffs, you can compare the effects of market volatilities on State Street and Cleveland Cliffs 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 Cleveland Cliffs. Check out your portfolio center. Please also check ongoing floating volatility patterns of State Street and Cleveland Cliffs.

Diversification Opportunities for State Street and Cleveland Cliffs

0.57

Correlation Coefficient

State Street  Cleveland Cliffs

Very weak diversification

The 3 months correlation between State and Cleveland is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding State Street Corp and Cleveland Cliffs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cleveland Cliffs 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 Cleveland Cliffs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cleveland Cliffs has no effect on the direction of State Street i.e., State Street and Cleveland Cliffs go up and down completely randomly.

Pair Corralation between State Street and Cleveland Cliffs

Considering the 90-day investment horizon State Street is expected to generate 1.26 times less return on investment than Cleveland Cliffs. But when comparing it to its historical volatility, State Street Corp is 1.54 times less risky than Cleveland Cliffs. It trades about 0.04 of its potential returns per unit of risk. Cleveland Cliffs is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,518  in Cleveland Cliffs on January 25, 2024 and sell it today you would earn a total of  314.00  from holding Cleveland Cliffs or generate 20.69% return on investment over 90 days.

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

State Street Corp  vs.  Cleveland Cliffs

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.

Cleveland Cliffs

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cleveland Cliffs are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, Cleveland Cliffs is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with State Street and Cleveland Cliffs

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

The idea behind State Street Corp and Cleveland Cliffs 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.