Correlation Between Ford and Columbia Select

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Can any of the company-specific risk be diversified away by investing in both Ford and Columbia Select 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 Ford and Columbia Select into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Columbia Select Large, you can compare the effects of market volatilities on Ford and Columbia Select 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 Ford with a short position of Columbia Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Columbia Select.

Diversification Opportunities for Ford and Columbia Select

0.61
  Correlation Coefficient

Poor diversification

The 3 months correlation between Ford and Columbia is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Columbia Select Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia Select Large and Ford 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 Ford Motor are associated (or correlated) with Columbia Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbia Select Large has no effect on the direction of Ford i.e., Ford and Columbia Select go up and down completely randomly.

Pair Corralation between Ford and Columbia Select

Taking into account the 90-day investment horizon Ford is expected to generate 1.36 times less return on investment than Columbia Select. In addition to that, Ford is 2.56 times more volatile than Columbia Select Large. It trades about 0.03 of its total potential returns per unit of risk. Columbia Select Large is currently generating about 0.11 per unit of volatility. If you would invest  2,120  in Columbia Select Large on September 11, 2024 and sell it today you would earn a total of  115.00  from holding Columbia Select Large or generate 5.42% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Ford Motor  vs.  Columbia Select Large

 Performance 
       Timeline  
Ford Motor 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Ford is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.
Columbia Select Large 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Columbia Select Large are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Columbia Select is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ford and Columbia Select Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ford and Columbia Select

The main advantage of trading using opposite Ford and Columbia Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Columbia Select 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 Select will offset losses from the drop in Columbia Select's long position.
The idea behind Ford Motor and Columbia Select Large 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 Global Correlations module to find global opportunities by holding instruments from different markets.

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