Correlation Between Columbia Sportswear and Fortescue Metals

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

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

Diversification Opportunities for Columbia Sportswear and Fortescue Metals

-0.22

Correlation Coefficient

Columbia Sportswear  Fortescue Metals

Very good diversification

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

Pair Corralation between Columbia Sportswear and Fortescue Metals

Assuming the 90 days horizon Columbia Sportswear is expected to generate 0.79 times more return on investment than Fortescue Metals. However, Columbia Sportswear is 1.27 times less risky than Fortescue Metals. It trades about 0.13 of its potential returns per unit of risk. Fortescue Metals Group is currently generating about -0.01 per unit of risk. If you would invest  7,172  in Columbia Sportswear on October 24, 2024 and sell it today you would earn a total of  878.00  from holding Columbia Sportswear or generate 12.24% return on investment over 90 days.

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

Columbia Sportswear  vs.  Fortescue Metals Group

Columbia Sportswear

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Columbia Sportswear are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Columbia Sportswear reported solid returns over the last few months and may actually be approaching a breakup point.

Fortescue Metals

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Columbia Sportswear and Fortescue Metals

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

The idea behind Columbia Sportswear and Fortescue Metals Group 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..