Correlation Between Columbia Sportswear and STMICROELECTRONICS

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

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

Diversification Opportunities for Columbia Sportswear and STMICROELECTRONICS

-0.56

Correlation Coefficient

Columbia Sportswear  STMICROELECTRONICS

Excellent diversification

The 3 months correlation between Columbia and STMICROELECTRONICS is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Columbia Sportswear and STMICROELECTRONICS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMICROELECTRONICS and Columbia Sportswear 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 Sportswear are associated (or correlated) with STMICROELECTRONICS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STMICROELECTRONICS has no effect on the direction of Columbia Sportswear i.e., Columbia Sportswear and STMICROELECTRONICS go up and down completely randomly.

Pair Corralation between Columbia Sportswear and STMICROELECTRONICS

Assuming the 90 days horizon Columbia Sportswear is expected to generate 0.92 times more return on investment than STMICROELECTRONICS. However, Columbia Sportswear is 1.09 times less risky than STMICROELECTRONICS. It trades about 0.26 of its potential returns per unit of risk. STMICROELECTRONICS is currently generating about 0.02 per unit of risk. If you would invest  7,770  in Columbia Sportswear on September 13, 2024 and sell it today you would earn a total of  780.00  from holding Columbia Sportswear or generate 10.04% return on investment over 90 days.

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

Columbia Sportswear  vs.  STMICROELECTRONICS

Columbia Sportswear

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Columbia Sportswear are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Columbia Sportswear reported solid returns over the last few months and may actually be approaching a breakup point.

STMICROELECTRONICS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMICROELECTRONICS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, STMICROELECTRONICS is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Columbia Sportswear and STMICROELECTRONICS

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

The idea behind Columbia Sportswear and STMICROELECTRONICS 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.