Correlation Between Columbia Sportswear and SM Investments

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

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

Diversification Opportunities for Columbia Sportswear and SM Investments

0.04

Correlation Coefficient

Columbia Sportswear  SM Investments

Significant diversification

The 3 months correlation between Columbia and SVTMF is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Columbia Sportswear and SM Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Investments and Columbia Sportswear 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 Sportswear are associated (or correlated) with SM Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SM Investments has no effect on the direction of Columbia Sportswear i.e., Columbia Sportswear and SM Investments go up and down completely randomly.

Pair Corralation between Columbia Sportswear and SM Investments

Given the investment horizon of 90 days Columbia Sportswear is expected to generate 1.28 times more return on investment than SM Investments. However, Columbia Sportswear is 1.28 times more volatile than SM Investments. It trades about -0.1 of its potential returns per unit of risk. SM Investments is currently generating about -0.19 per unit of risk. If you would invest  8,692  in Columbia Sportswear on December 21, 2024 and sell it today you would lose (1,056) from holding Columbia Sportswear or give up 12.15% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	88.33%
Values	Daily Returns

Columbia Sportswear  vs.  SM Investments

Columbia Sportswear

Risk-Adjusted Performance

Very Weak

Over the last 90 days Columbia Sportswear has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's essential indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

SM Investments

Risk-Adjusted Performance

Very Weak

Over the last 90 days SM Investments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's primary indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Columbia Sportswear and SM Investments

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

The idea behind Columbia Sportswear and SM Investments 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.