Correlation Between Small Cap and Columbia Select

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

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

Diversification Opportunities for Small Cap and Columbia Select

0.86

Correlation Coefficient

Small Cap  Columbia Select

Very poor diversification

The 3 months correlation between Small and Columbia is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Fund and Columbia Select Smaller Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia Select Smaller and Small Cap 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 Small Cap Value Fund 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 Smaller has no effect on the direction of Small Cap i.e., Small Cap and Columbia Select go up and down completely randomly.

Pair Corralation between Small Cap and Columbia Select

Assuming the 90 days horizon Small Cap is expected to generate 1.16 times less return on investment than Columbia Select. In addition to that, Small Cap is 1.09 times more volatile than Columbia Select Smaller Cap. It trades about 0.03 of its total potential returns per unit of risk. Columbia Select Smaller Cap is currently generating about 0.04 per unit of volatility. If you would invest  2,095  in Columbia Select Smaller Cap on July 20, 2024 and sell it today you would earn a total of  531.00  from holding Columbia Select Smaller Cap or generate 25.35% return on investment over 90 days.

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

Small Cap Value Fund  vs.  Columbia Select Smaller Cap

Small Cap Value

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Value Fund are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Small Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Columbia Select Smaller

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Columbia Select Smaller Cap are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Columbia Select is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Small Cap and Columbia Select

The main advantage of trading using opposite Small Cap and Columbia Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap 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 Small Cap Value Fund and Columbia Select Smaller Cap 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.