Correlation Between Columbia Diversified and SOFR

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

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

Diversification Opportunities for Columbia Diversified and SOFR

-0.63

Correlation Coefficient

Columbia Diversified  SOFR

Excellent diversification

The 3 months correlation between Columbia and SOFR is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Columbia Diversified Fixed and SOFR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SOFR and Columbia Diversified 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 Diversified Fixed are associated (or correlated) with SOFR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SOFR has no effect on the direction of Columbia Diversified i.e., Columbia Diversified and SOFR go up and down completely randomly.

Pair Corralation between Columbia Diversified and SOFR

Given the investment horizon of 90 days Columbia Diversified Fixed is expected to under-perform the SOFR. In addition to that, Columbia Diversified is 9.52 times more volatile than SOFR. It trades about -0.15 of its total potential returns per unit of risk. SOFR is currently generating about 0.48 per unit of volatility. If you would invest  9,938  in SOFR on September 23, 2024 and sell it today you would earn a total of  112.00  from holding SOFR or generate 1.13% return on investment over 90 days.

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

Columbia Diversified Fixed  vs.  SOFR

Columbia Diversified

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Columbia Diversified Fixed has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Columbia Diversified is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

SOFR

Risk-Adjusted Performance

38 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in SOFR are ranked lower than 38 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, SOFR is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Columbia Diversified and SOFR

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

The idea behind Columbia Diversified Fixed and SOFR 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.