Correlation Between American Beacon and Columbia Emerging

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

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

Diversification Opportunities for American Beacon and Columbia Emerging

0.12

Correlation Coefficient

American Beacon  Columbia Emerging

Average diversification

The 3 months correlation between American and Columbia is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding American Beacon Select and Columbia Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia Emerging Markets and American Beacon 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 American Beacon Select are associated (or correlated) with Columbia Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbia Emerging Markets has no effect on the direction of American Beacon i.e., American Beacon and Columbia Emerging go up and down completely randomly.

Pair Corralation between American Beacon and Columbia Emerging

Given the investment horizon of 90 days American Beacon Select is expected to generate 1.48 times more return on investment than Columbia Emerging. However, American Beacon is 1.48 times more volatile than Columbia Emerging Markets. It trades about 0.1 of its potential returns per unit of risk. Columbia Emerging Markets is currently generating about 0.02 per unit of risk. If you would invest  2,423  in American Beacon Select on September 12, 2024 and sell it today you would earn a total of  756.00  from holding American Beacon Select or generate 31.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	60.8%
Values	Daily Returns

American Beacon Select  vs.  Columbia Emerging Markets

American Beacon Select

Risk-Adjusted Performance

13 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Beacon Select are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, American Beacon reported solid returns over the last few months and may actually be approaching a breakup point.

Columbia Emerging Markets

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Columbia Emerging Markets are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Columbia Emerging is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with American Beacon and Columbia Emerging

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

The idea behind American Beacon Select and Columbia Emerging Markets 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.