Correlation Between Columbia Sportswear and Benchmark Electronics

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

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

Diversification Opportunities for Columbia Sportswear and Benchmark Electronics

0.74

Correlation Coefficient

Columbia Sportswear  Benchmark Electronics

Poor diversification

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

Pair Corralation between Columbia Sportswear and Benchmark Electronics

Assuming the 90 days horizon Columbia Sportswear is expected to generate 7.22 times less return on investment than Benchmark Electronics. But when comparing it to its historical volatility, Columbia Sportswear is 1.35 times less risky than Benchmark Electronics. It trades about 0.02 of its potential returns per unit of risk. Benchmark Electronics is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,086  in Benchmark Electronics on October 5, 2024 and sell it today you would earn a total of  2,314  from holding Benchmark Electronics or generate 110.93% return on investment over 90 days.

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

Columbia Sportswear  vs.  Benchmark Electronics

Columbia Sportswear

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Columbia Sportswear has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Columbia Sportswear may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Benchmark Electronics

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Benchmark Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Benchmark Electronics reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Columbia Sportswear and Benchmark Electronics

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

The idea behind Columbia Sportswear and Benchmark Electronics 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.