Correlation Between Bank of America and Columbia Sportswear

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

Diversification Opportunities for Bank of America and Columbia Sportswear

BankColumbiaDiversified AwayBankColumbiaDiversified Away100%
-0.21
  Correlation Coefficient

Very good diversification

The 3 months correlation between Bank and Columbia is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Columbia Sportswear in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia Sportswear and Bank of America 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 Bank of America are associated (or correlated) with Columbia Sportswear. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbia Sportswear has no effect on the direction of Bank of America i.e., Bank of America and Columbia Sportswear go up and down completely randomly.

Pair Corralation between Bank of America and Columbia Sportswear

Considering the 90-day investment horizon Bank of America is expected to generate 0.9 times more return on investment than Columbia Sportswear. However, Bank of America is 1.11 times less risky than Columbia Sportswear. It trades about 0.05 of its potential returns per unit of risk. Columbia Sportswear is currently generating about 0.02 per unit of risk. If you would invest  3,141  in Bank of America on November 26, 2024 and sell it today you would earn a total of  1,305  from holding Bank of America or generate 41.55% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy98.61%
ValuesDaily Returns

Bank of America  vs.  Columbia Sportswear

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -50510
JavaScript chart by amCharts 3.21.15BAC CUW
       Timeline  
Bank of America 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Bank of America has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Bank of America is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb434445464748
Columbia Sportswear 

Risk-Adjusted Performance

Weak

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Columbia Sportswear are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Columbia Sportswear is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb767880828486

Bank of America and Columbia Sportswear Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-1.82-1.36-0.9-0.44-0.01520.40.861.321.78 0.050.100.150.200.250.30
JavaScript chart by amCharts 3.21.15BAC CUW
       Returns  

Pair Trading with Bank of America and Columbia Sportswear

The main advantage of trading using opposite Bank of America and Columbia Sportswear positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Columbia Sportswear 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 Sportswear will offset losses from the drop in Columbia Sportswear's long position.
The idea behind Bank of America and Columbia Sportswear 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

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