Correlation Between Canadian Utilities and Columbia Sportswear

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

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

Diversification Opportunities for Canadian Utilities and Columbia Sportswear

0.07

Correlation Coefficient

Canadian Utilities  Columbia Sportswear

Significant diversification

The 3 months correlation between Canadian and Columbia is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Utilities Limited and Columbia Sportswear in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia Sportswear and Canadian Utilities 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 Canadian Utilities Limited are associated (or correlated) with Columbia Sportswear. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbia Sportswear has no effect on the direction of Canadian Utilities i.e., Canadian Utilities and Columbia Sportswear go up and down completely randomly.

Pair Corralation between Canadian Utilities and Columbia Sportswear

Assuming the 90 days horizon Canadian Utilities Limited is expected to under-perform the Columbia Sportswear. But the stock apears to be less risky and, when comparing its historical volatility, Canadian Utilities Limited is 2.06 times less risky than Columbia Sportswear. The stock trades about -0.03 of its potential returns per unit of risk. The Columbia Sportswear is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  8,250  in Columbia Sportswear on December 1, 2024 and sell it today you would earn a total of  400.00  from holding Columbia Sportswear or generate 4.85% return on investment over 90 days.

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

Canadian Utilities Limited  vs.  Columbia Sportswear

Canadian Utilities

Risk-Adjusted Performance

Very Weak

Over the last 90 days Canadian Utilities Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Canadian Utilities is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Columbia Sportswear

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Columbia Sportswear are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Columbia Sportswear is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Canadian Utilities and Columbia Sportswear

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

The idea behind Canadian Utilities Limited and Columbia Sportswear 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.