Correlation Between Columbia Moderate and State Farm

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

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

Diversification Opportunities for Columbia Moderate and State Farm

0.92

Correlation Coefficient

Columbia Moderate  State Farm

Almost no diversification

The 3 months correlation between Columbia and State is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Columbia Moderate Growth and State Farm Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Farm Growth and Columbia Moderate 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 Moderate Growth are associated (or correlated) with State Farm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Farm Growth has no effect on the direction of Columbia Moderate i.e., Columbia Moderate and State Farm go up and down completely randomly.

Pair Corralation between Columbia Moderate and State Farm

Assuming the 90 days horizon Columbia Moderate is expected to generate 1.19 times less return on investment than State Farm. But when comparing it to its historical volatility, Columbia Moderate Growth is 1.4 times less risky than State Farm. It trades about 0.11 of its potential returns per unit of risk. State Farm Growth is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  9,420  in State Farm Growth on September 14, 2024 and sell it today you would earn a total of  3,767  from holding State Farm Growth or generate 39.99% return on investment over 90 days.

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

Columbia Moderate Growth  vs.  State Farm Growth

Columbia Moderate Growth

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Columbia Moderate Growth are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. 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.

State Farm Growth

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in State Farm Growth are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, State Farm may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Columbia Moderate and State Farm

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

The idea behind Columbia Moderate Growth and State Farm 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 Anywhere module to track or share privately all of your investments from the convenience of any device.