Correlation Between Northern Small and Columbia

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

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

Diversification Opportunities for Northern Small and Columbia

-0.6

Correlation Coefficient

Northern Small  Columbia

Excellent diversification

The 3 months correlation between Northern and Columbia is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Northern Small Cap and Columbia Treasury Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia Treasury Index and Northern Small 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 Northern Small Cap are associated (or correlated) with Columbia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbia Treasury Index has no effect on the direction of Northern Small i.e., Northern Small and Columbia go up and down completely randomly.

Pair Corralation between Northern Small and Columbia

Assuming the 90 days horizon Northern Small Cap is expected to under-perform the Columbia. In addition to that, Northern Small is 4.09 times more volatile than Columbia Treasury Index. It trades about -0.11 of its total potential returns per unit of risk. Columbia Treasury Index is currently generating about 0.17 per unit of volatility. If you would invest  971.00  in Columbia Treasury Index on December 21, 2024 and sell it today you would earn a total of  28.00  from holding Columbia Treasury Index or generate 2.88% return on investment over 90 days.

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

Northern Small Cap  vs.  Columbia Treasury Index

Northern Small Cap

Risk-Adjusted Performance

Very Weak

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

Columbia Treasury Index

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Columbia Treasury Index are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Columbia is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Northern Small and Columbia

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

The idea behind Northern Small Cap and Columbia Treasury Index 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.