Correlation Between Ford and Columbia Select
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
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Ford and Columbia is 0.64. 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 2.66 times less return on investment than Columbia Select. In addition to that, Ford is 2.98 times more volatile than Columbia Select Large. It trades about 0.02 of its total potential returns per unit of risk. Columbia Select Large is currently generating about 0.15 per unit of volatility. If you would invest 1,756 in Columbia Select Large on September 6, 2024 and sell it today you would earn a total of 556.00 from holding Columbia Select Large or generate 31.66% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Ford Motor vs. Columbia Select Large
Performance |
Timeline |
Ford Motor |
Columbia Select Large |
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.Columbia Select vs. Columbia Large Cap | Columbia Select vs. Columbia Small Cap | Columbia Select vs. Columbia Large Cap | Columbia Select vs. Columbia Mid Cap |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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