Correlation Between State Street and Schlumberger

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

Diversification Opportunities for State Street and Schlumberger

0.6

Correlation Coefficient

State Street  Schlumberger

Poor diversification

The 3 months correlation between State and Schlumberger is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding State Street Corp and Schlumberger NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schlumberger NV 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 Schlumberger. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schlumberger NV has no effect on the direction of State Street i.e., State Street and Schlumberger go up and down completely randomly.

Pair Corralation between State Street and Schlumberger

Considering the 90-day investment horizon State Street Corp is expected to generate 1.1 times more return on investment than Schlumberger. However, State Street is 1.1 times more volatile than Schlumberger NV. It trades about -0.05 of its potential returns per unit of risk. Schlumberger NV is currently generating about -0.43 per unit of risk. If you would invest  7,664  in State Street Corp on February 9, 2024 and sell it today you would lose (132.00) from holding State Street Corp or give up 1.72% of portfolio value over 90 days.

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

State Street Corp  vs.  Schlumberger NV

State Street Corp

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in State Street Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

Schlumberger NV

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Schlumberger NV are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, Schlumberger 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 Schlumberger

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

The idea behind State Street Corp and Schlumberger NV 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.