Correlation Between Columbia Large and Columbia Small

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

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

Diversification Opportunities for Columbia Large and Columbia Small

0.86

Correlation Coefficient

Columbia Large  Columbia Small

Very poor diversification

The 3 months correlation between Columbia and Columbia is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Columbia Large Cap and Columbia Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia Small Cap and Columbia Large 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 Large Cap are associated (or correlated) with Columbia Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbia Small Cap has no effect on the direction of Columbia Large i.e., Columbia Large and Columbia Small go up and down completely randomly.

Pair Corralation between Columbia Large and Columbia Small

Assuming the 90 days horizon Columbia Large Cap is expected to under-perform the Columbia Small. In addition to that, Columbia Large is 1.34 times more volatile than Columbia Small Cap. It trades about -0.19 of its total potential returns per unit of risk. Columbia Small Cap is currently generating about 0.06 per unit of volatility. If you would invest  3,021  in Columbia Small Cap on September 14, 2024 and sell it today you would earn a total of  44.00  from holding Columbia Small Cap or generate 1.46% return on investment over 90 days.

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

Columbia Large Cap  vs.  Columbia Small Cap

Columbia Large Cap

Risk-Adjusted Performance

0 of 100

Weak

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

Columbia Small Cap

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Columbia Small Cap are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. 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.

Pair Trading with Columbia Large and Columbia Small

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

The idea behind Columbia Large Cap and Columbia Small 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.