Correlation Between Colorado Bondshares and American Independence

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

By analyzing existing cross correlation between Colorado Bondshares A and American Independence Kansas, you can compare the effects of market volatilities on Colorado Bondshares and American Independence 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 Colorado Bondshares with a short position of American Independence. Check out your portfolio center. Please also check ongoing floating volatility patterns of Colorado Bondshares and American Independence.

Diversification Opportunities for Colorado Bondshares and American Independence

0.75

Correlation Coefficient

Colorado Bondshares  American Independence

Poor diversification

The 3 months correlation between Colorado and American is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Colorado Bondshares A and American Independence Kansas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Independence and Colorado Bondshares 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 Colorado Bondshares A are associated (or correlated) with American Independence. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Independence has no effect on the direction of Colorado Bondshares i.e., Colorado Bondshares and American Independence go up and down completely randomly.

Pair Corralation between Colorado Bondshares and American Independence

Assuming the 90 days horizon Colorado Bondshares A is expected to under-perform the American Independence. But the mutual fund apears to be less risky and, when comparing its historical volatility, Colorado Bondshares A is 1.01 times less risky than American Independence. The mutual fund trades about -0.31 of its potential returns per unit of risk. The American Independence Kansas is currently generating about -0.23 of returns per unit of risk over similar time horizon. If you would invest  1,015  in American Independence Kansas on September 27, 2024 and sell it today you would lose (10.00) from holding American Independence Kansas or give up 0.99% of portfolio value over 90 days.

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

Colorado Bondshares A  vs.  American Independence Kansas

Colorado Bondshares

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Colorado Bondshares A has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Colorado Bondshares is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Independence

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Colorado Bondshares and American Independence

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

The idea behind Colorado Bondshares A and American Independence Kansas 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.