Correlation Between Davis Opportunity and Columbia Small

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

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

Diversification Opportunities for Davis Opportunity and Columbia Small

0.63

Correlation Coefficient

Davis Opportunity  Columbia Small

Poor diversification

The 3 months correlation between Davis and Columbia is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Davis Opportunity Fund 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 Davis Opportunity 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 Davis Opportunity Fund 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 Davis Opportunity i.e., Davis Opportunity and Columbia Small go up and down completely randomly.

Pair Corralation between Davis Opportunity and Columbia Small

Assuming the 90 days horizon Davis Opportunity is expected to generate 1.8 times less return on investment than Columbia Small. But when comparing it to its historical volatility, Davis Opportunity Fund is 1.29 times less risky than Columbia Small. It trades about 0.15 of its potential returns per unit of risk. Columbia Small Cap is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  5,092  in Columbia Small Cap on September 12, 2024 and sell it today you would earn a total of  700.00  from holding Columbia Small Cap or generate 13.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	84.38%
Values	Daily Returns

Davis Opportunity Fund  vs.  Columbia Small Cap

Davis Opportunity

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Opportunity Fund are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Davis Opportunity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Columbia Small Cap

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Columbia Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly weak basic indicators, Columbia Small showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Davis Opportunity and Columbia Small

The main advantage of trading using opposite Davis Opportunity and Columbia Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Davis Opportunity 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 Davis Opportunity Fund 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.