Correlation Between Northern Small and Columbia Integrated

Can any of the company-specific risk be diversified away by investing in both Northern Small and Columbia Integrated 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 Integrated 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 Integrated Large, you can compare the effects of market volatilities on Northern Small and Columbia Integrated 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 Integrated. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Small and Columbia Integrated.

Diversification Opportunities for Northern Small and Columbia Integrated

0.87

Correlation Coefficient

Northern Small  Columbia Integrated

Very poor diversification

The 3 months correlation between Northern and Columbia is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Northern Small Cap and Columbia Integrated Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia Integrated Large 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 Integrated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbia Integrated Large has no effect on the direction of Northern Small i.e., Northern Small and Columbia Integrated go up and down completely randomly.

Pair Corralation between Northern Small and Columbia Integrated

Assuming the 90 days horizon Northern Small Cap is expected to generate 0.88 times more return on investment than Columbia Integrated. However, Northern Small Cap is 1.13 times less risky than Columbia Integrated. It trades about -0.11 of its potential returns per unit of risk. Columbia Integrated Large is currently generating about -0.12 per unit of risk. If you would invest  1,396  in Northern Small Cap on December 21, 2024 and sell it today you would lose (108.00) from holding Northern Small Cap or give up 7.74% of portfolio value over 90 days.

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

Northern Small Cap  vs.  Columbia Integrated Large

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 Integrated Large

Risk-Adjusted Performance

Very Weak

Over the last 90 days Columbia Integrated Large 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.

Pair Trading with Northern Small and Columbia Integrated

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

The idea behind Northern Small Cap and Columbia Integrated Large 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.