Correlation Between Smallcap World and Columbia Ultra

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

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

Diversification Opportunities for Smallcap World and Columbia Ultra

0.22

Correlation Coefficient

Smallcap World  Columbia Ultra

Modest diversification

The 3 months correlation between Smallcap and Columbia is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap World Fund and Columbia Ultra Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia Ultra Short and Smallcap World 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 Smallcap World Fund are associated (or correlated) with Columbia Ultra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbia Ultra Short has no effect on the direction of Smallcap World i.e., Smallcap World and Columbia Ultra go up and down completely randomly.

Pair Corralation between Smallcap World and Columbia Ultra

Assuming the 90 days horizon Smallcap World Fund is expected to generate 10.01 times more return on investment than Columbia Ultra. However, Smallcap World is 10.01 times more volatile than Columbia Ultra Short. It trades about 0.04 of its potential returns per unit of risk. Columbia Ultra Short is currently generating about 0.24 per unit of risk. If you would invest  5,945  in Smallcap World Fund on October 10, 2024 and sell it today you would earn a total of  884.00  from holding Smallcap World Fund or generate 14.87% return on investment over 90 days.

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

Smallcap World Fund  vs.  Columbia Ultra Short

Smallcap World

Risk-Adjusted Performance

0 of 100

Very Weak

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

Columbia Ultra Short

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Columbia Ultra Short are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Columbia Ultra is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Smallcap World and Columbia Ultra

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

The idea behind Smallcap World Fund and Columbia Ultra Short 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.