Correlation Between American Funds and Columbia Diversified

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Can any of the company-specific risk be diversified away by investing in both American Funds and Columbia Diversified 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 American Funds and Columbia Diversified into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds American and Columbia Diversified Equity, you can compare the effects of market volatilities on American Funds and Columbia Diversified 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 American Funds with a short position of Columbia Diversified. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Columbia Diversified.

Diversification Opportunities for American Funds and Columbia Diversified

0.8
  Correlation Coefficient

Very poor diversification

The 3 months correlation between American and Columbia is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding American Funds American and Columbia Diversified Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia Diversified and American Funds 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 American Funds American are associated (or correlated) with Columbia Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbia Diversified has no effect on the direction of American Funds i.e., American Funds and Columbia Diversified go up and down completely randomly.

Pair Corralation between American Funds and Columbia Diversified

Assuming the 90 days horizon American Funds American is expected to generate 0.73 times more return on investment than Columbia Diversified. However, American Funds American is 1.37 times less risky than Columbia Diversified. It trades about -0.32 of its potential returns per unit of risk. Columbia Diversified Equity is currently generating about -0.33 per unit of risk. If you would invest  6,023  in American Funds American on October 5, 2024 and sell it today you would lose (506.00) from holding American Funds American or give up 8.4% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

American Funds American  vs.  Columbia Diversified Equity

 Performance 
       Timeline  
American Funds American 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days American Funds American has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong primary indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Columbia Diversified 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Columbia Diversified Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

American Funds and Columbia Diversified Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with American Funds and Columbia Diversified

The main advantage of trading using opposite American Funds and Columbia Diversified positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Columbia Diversified 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 Diversified will offset losses from the drop in Columbia Diversified's long position.
The idea behind American Funds American and Columbia Diversified Equity 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.

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