Correlation Between Columbia Moderate and Invesco American

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

By analyzing existing cross correlation between Columbia Moderate Growth and Invesco American Franchise, you can compare the effects of market volatilities on Columbia Moderate and Invesco American 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 Columbia Moderate with a short position of Invesco American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Columbia Moderate and Invesco American.

Diversification Opportunities for Columbia Moderate and Invesco American

0.74

Correlation Coefficient

Columbia Moderate  Invesco American

Poor diversification

The 3 months correlation between Columbia and Invesco is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Columbia Moderate Growth and Invesco American Franchise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco American Fra and Columbia Moderate 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 Columbia Moderate Growth are associated (or correlated) with Invesco American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco American Fra has no effect on the direction of Columbia Moderate i.e., Columbia Moderate and Invesco American go up and down completely randomly.

Pair Corralation between Columbia Moderate and Invesco American

Assuming the 90 days horizon Columbia Moderate Growth is expected to generate 0.35 times more return on investment than Invesco American. However, Columbia Moderate Growth is 2.89 times less risky than Invesco American. It trades about -0.01 of its potential returns per unit of risk. Invesco American Franchise is currently generating about -0.11 per unit of risk. If you would invest  4,018  in Columbia Moderate Growth on December 21, 2024 and sell it today you would lose (15.00) from holding Columbia Moderate Growth or give up 0.37% of portfolio value over 90 days.

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

Columbia Moderate Growth  vs.  Invesco American Franchise

Columbia Moderate Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Columbia Moderate Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Columbia Moderate is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Invesco American Fra

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco American Franchise has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Columbia Moderate and Invesco American

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

The idea behind Columbia Moderate Growth and Invesco American Franchise 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.