Correlation Between Microsoft and Columbia Banking

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

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

Diversification Opportunities for Microsoft and Columbia Banking

0.8

Correlation Coefficient

Microsoft  Columbia Banking

Very poor diversification

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

Pair Corralation between Microsoft and Columbia Banking

Given the investment horizon of 90 days Microsoft is expected to under-perform the Columbia Banking. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.06 times less risky than Columbia Banking. The stock trades about -0.11 of its potential returns per unit of risk. The Columbia Banking System is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  2,658  in Columbia Banking System on December 30, 2024 and sell it today you would lose (185.00) from holding Columbia Banking System or give up 6.96% of portfolio value over 90 days.

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

Microsoft  vs.  Columbia Banking System

Microsoft

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Columbia Banking System

Risk-Adjusted Performance

Very Weak

Over the last 90 days Columbia Banking System has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Microsoft and Columbia Banking

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

The idea behind Microsoft and Columbia Banking System 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.