Correlation Between Ford and Columbia
Can any of the company-specific risk be diversified away by investing in both Ford and Columbia 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 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 Government Mortgage, you can compare the effects of market volatilities on Ford and Columbia 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. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Columbia.
Diversification Opportunities for Ford and Columbia
Weak diversification
The 3 months correlation between Ford and Columbia is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Columbia Government Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia Government 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. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbia Government has no effect on the direction of Ford i.e., Ford and Columbia go up and down completely randomly.
Pair Corralation between Ford and Columbia
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Columbia. In addition to that, Ford is 5.55 times more volatile than Columbia Government Mortgage. It trades about -0.09 of its total potential returns per unit of risk. Columbia Government Mortgage is currently generating about 0.22 per unit of volatility. If you would invest 1,737 in Columbia Government Mortgage on November 9, 2024 and sell it today you would earn a total of 34.00 from holding Columbia Government Mortgage or generate 1.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Columbia Government Mortgage
Performance |
| Timeline |
| Ford Motor |
| Columbia Government |
Ford and Columbia Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Columbia
The main advantage of trading using opposite Ford and Columbia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Columbia 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 will offset losses from the drop in Columbia's long position.The idea behind Ford Motor and Columbia Government Mortgage 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 vs. Gmo High Yield | Columbia vs. Litman Gregory Masters | Columbia vs. Pace High Yield | Columbia vs. Intal High Relative |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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