Correlation Between Fifth Third and Columbia Financial

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

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

Diversification Opportunities for Fifth Third and Columbia Financial

0.8

Correlation Coefficient

Fifth Third  Columbia Financial

Very poor diversification

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

Pair Corralation between Fifth Third and Columbia Financial

Given the investment horizon of 90 days Fifth Third Bancorp is expected to generate 0.7 times more return on investment than Columbia Financial. However, Fifth Third Bancorp is 1.44 times less risky than Columbia Financial. It trades about -0.19 of its potential returns per unit of risk. Columbia Financial is currently generating about -0.3 per unit of risk. If you would invest  4,720  in Fifth Third Bancorp on September 14, 2024 and sell it today you would lose (167.00) from holding Fifth Third Bancorp or give up 3.54% of portfolio value over 90 days.

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

Fifth Third Bancorp  vs.  Columbia Financial

Fifth Third Bancorp

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fifth Third Bancorp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Fifth Third may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Columbia Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Columbia Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental drivers, Columbia Financial is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Fifth Third and Columbia Financial

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

The idea behind Fifth Third Bancorp and Columbia Financial 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..