Correlation Between Sierra Core and Columbia Moderate

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

By analyzing existing cross correlation between Sierra E Retirement and Columbia Moderate Growth, you can compare the effects of market volatilities on Sierra Core and Columbia Moderate 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 Sierra Core with a short position of Columbia Moderate. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sierra Core and Columbia Moderate.

Diversification Opportunities for Sierra Core and Columbia Moderate

0.88

Correlation Coefficient

Sierra Core  Columbia Moderate

Very poor diversification

The 3 months correlation between Sierra and Columbia is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Sierra E Retirement and Columbia Moderate Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia Moderate Growth and Sierra Core 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 Sierra E Retirement are associated (or correlated) with Columbia Moderate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbia Moderate Growth has no effect on the direction of Sierra Core i.e., Sierra Core and Columbia Moderate go up and down completely randomly.

Pair Corralation between Sierra Core and Columbia Moderate

Assuming the 90 days horizon Sierra Core is expected to generate 2.41 times less return on investment than Columbia Moderate. But when comparing it to its historical volatility, Sierra E Retirement is 1.48 times less risky than Columbia Moderate. It trades about 0.06 of its potential returns per unit of risk. Columbia Moderate Growth is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,986  in Columbia Moderate Growth on October 21, 2024 and sell it today you would earn a total of  47.00  from holding Columbia Moderate Growth or generate 1.18% return on investment over 90 days.

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

Sierra E Retirement  vs.  Columbia Moderate Growth

Sierra E Retirement

Risk-Adjusted Performance

0 of 100

Very Weak

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

Columbia Moderate Growth

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Sierra Core and Columbia Moderate

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

The idea behind Sierra E Retirement and Columbia Moderate Growth 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.