Correlation Between Western Asset and Columbia Small

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

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

Diversification Opportunities for Western Asset and Columbia Small

0.46

Correlation Coefficient

Western Asset  Columbia Small

Very weak diversification

The 3 months correlation between Western and Columbia is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Diversified 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 Western Asset 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 Western Asset Diversified 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 Western Asset i.e., Western Asset and Columbia Small go up and down completely randomly.

Pair Corralation between Western Asset and Columbia Small

Assuming the 90 days horizon Western Asset Diversified is expected to under-perform the Columbia Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Western Asset Diversified is 4.26 times less risky than Columbia Small. The mutual fund trades about -0.11 of its potential returns per unit of risk. The Columbia Small Cap is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  5,340  in Columbia Small Cap on October 21, 2024 and sell it today you would earn a total of  199.00  from holding Columbia Small Cap or generate 3.73% return on investment over 90 days.

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

Western Asset Diversified  vs.  Columbia Small Cap

Western Asset Diversified

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Asset Diversified has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Western Asset 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

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Columbia Small Cap are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Columbia Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Western Asset and Columbia Small

The main advantage of trading using opposite Western Asset and Columbia Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset 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 Western Asset Diversified 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.