Correlation Between Columbia Large and Ishares Municipal

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

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

Diversification Opportunities for Columbia Large and Ishares Municipal

0.08

Correlation Coefficient

Columbia Large  Ishares Municipal

Significant diversification

The 3 months correlation between Columbia and Ishares is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Columbia Large Cap and Ishares Municipal Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ishares Municipal Bond and Columbia Large 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 Large Cap are associated (or correlated) with Ishares Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ishares Municipal Bond has no effect on the direction of Columbia Large i.e., Columbia Large and Ishares Municipal go up and down completely randomly.

Pair Corralation between Columbia Large and Ishares Municipal

Assuming the 90 days horizon Columbia Large Cap is expected to generate 4.02 times more return on investment than Ishares Municipal. However, Columbia Large is 4.02 times more volatile than Ishares Municipal Bond. It trades about 0.16 of its potential returns per unit of risk. Ishares Municipal Bond is currently generating about -0.01 per unit of risk. If you would invest  1,595  in Columbia Large Cap on September 15, 2024 and sell it today you would earn a total of  168.00  from holding Columbia Large Cap or generate 10.53% return on investment over 90 days.

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

Columbia Large Cap  vs.  Ishares Municipal Bond

Columbia Large Cap

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Columbia Large Cap are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Columbia Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Ishares Municipal Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ishares Municipal Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Ishares Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Columbia Large and Ishares Municipal

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

The idea behind Columbia Large Cap and Ishares Municipal Bond 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.