Correlation Between Columbia Small and Columbia Large

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

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

Diversification Opportunities for Columbia Small and Columbia Large

0.67

Correlation Coefficient

Columbia Small  Columbia Large

Poor diversification

The 3 months correlation between Columbia and Columbia is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Columbia Small Cap and Columbia Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia Large Cap and Columbia Small 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 Small Cap are associated (or correlated) with Columbia Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbia Large Cap has no effect on the direction of Columbia Small i.e., Columbia Small and Columbia Large go up and down completely randomly.

Pair Corralation between Columbia Small and Columbia Large

Assuming the 90 days horizon Columbia Small Cap is expected to generate 1.66 times more return on investment than Columbia Large. However, Columbia Small is 1.66 times more volatile than Columbia Large Cap. It trades about 0.18 of its potential returns per unit of risk. Columbia Large Cap is currently generating about 0.22 per unit of risk. If you would invest  5,113  in Columbia Small Cap on September 5, 2024 and sell it today you would earn a total of  679.00  from holding Columbia Small Cap or generate 13.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	92.19%
Values	Daily Returns

Columbia Small Cap  vs.  Columbia Large Cap

Columbia Small Cap

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Columbia Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly weak basic indicators, Columbia Small showed solid returns over the last few months and may actually be approaching a breakup point.

Columbia Large Cap

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Columbia Large Cap are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Columbia Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Columbia Small and Columbia Large

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

The idea behind Columbia Small Cap and Columbia Large Cap 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.