Correlation Between DOW JONES and COLUMBIA LIMITED

Specify exactly 2 symbols:
Can any of the company-specific risk be diversified away by investing in both DOW JONES and COLUMBIA LIMITED 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 DOW JONES and COLUMBIA LIMITED into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DOW JONES INDUSTRIAL and COLUMBIA LIMITED DURATION, you can compare the effects of market volatilities on DOW JONES and COLUMBIA LIMITED 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 DOW JONES with a short position of COLUMBIA LIMITED. Check out your portfolio center. Please also check ongoing floating volatility patterns of DOW JONES and COLUMBIA LIMITED.

Diversification Opportunities for DOW JONES and COLUMBIA LIMITED

0.61
  Correlation Coefficient

Poor diversification

The 3 months correlation between DOW JONES and COLUMBIA is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding DOW JONES INDUSTRIAL and COLUMBIA LIMITED DURATION in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COLUMBIA LIMITED DURATION and DOW JONES 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 DOW JONES INDUSTRIAL are associated (or correlated) with COLUMBIA LIMITED. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COLUMBIA LIMITED DURATION has no effect on the direction of DOW JONES i.e., DOW JONES and COLUMBIA LIMITED go up and down completely randomly.
    Optimize

Pair Corralation between DOW JONES and COLUMBIA LIMITED

Given the investment horizon of 90 days DOW JONES INDUSTRIAL is expected to generate 5.39 times more return on investment than COLUMBIA LIMITED. However, DOW JONES is 5.39 times more volatile than COLUMBIA LIMITED DURATION. It trades about 0.26 of its potential returns per unit of risk. COLUMBIA LIMITED DURATION is currently generating about 0.2 per unit of risk. If you would invest  3,027,387  in DOW JONES INDUSTRIAL on September 5, 2022 and sell it today you would earn a total of  431,590  from holding DOW JONES INDUSTRIAL or generate 14.26% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy95.35%
ValuesDaily Returns

DOW JONES INDUSTRIAL  vs.  COLUMBIA LIMITED DURATION

 Performance (%) 
       Timeline  

DOW JONES and COLUMBIA LIMITED Volatility Contrast

   Predicted Return Density   
       Returns  

DOW JONES INDUSTRIAL

Pair trading matchups for DOW JONES

The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against DOW JONES as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. DOW JONES's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, DOW JONES's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to DOW JONES INDUSTRIAL.

COLUMBIA LIMITED DURATION

Pair trading matchups for COLUMBIA LIMITED

Pair Trading with DOW JONES and COLUMBIA LIMITED

The main advantage of trading using opposite DOW JONES and COLUMBIA LIMITED positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DOW JONES position performs unexpectedly, COLUMBIA LIMITED 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 LIMITED will offset losses from the drop in COLUMBIA LIMITED's long position.
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against DOW JONES as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. DOW JONES's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, DOW JONES's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to DOW JONES INDUSTRIAL.
The idea behind DOW JONES INDUSTRIAL and COLUMBIA LIMITED DURATION 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 LIMITED vs. FT Cboe Vest
COLUMBIA LIMITED vs. VANGUARD SMALL-CAP GROWTH
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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.

Other Complementary Tools

Headlines Timeline
Stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity
Go
Idea Analyzer
Analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas
Go
Probability Of Bankruptcy
Get analysis of equity chance of financial distress in the next 2 years
Go
Price Exposure Probability
Analyze equity upside and downside potential for a given time horizon across multiple markets
Go
Portfolio Rebalancing
Analyze risk-adjusted returns against different time horizons to find asset-allocation targets
Go
Probability Of Bankruptcy
Get analysis of equity chance of financial distress in the next 2 years
Go
Equity Forecasting
Use basic forecasting models to generate price predictions and determine price momentum
Go
Bollinger Bands
Use Bollinger Bands indicator to analyze target price for a given investing horizon
Go
Options Analysis
Analyze and evaluate options and option chains as a potential hedge for your portfolios
Go
Focused Opportunities
Build portfolios using our predefined set of ideas and optimize them against your investing preferences
Go
Efficient Frontier
Plot and analyze your portfolio and positions against risk-return landscape of the market.
Go
CEO Directory
Screen CEOs from public companies around the world
Go
Portfolio Anywhere
Track or share privately all of your investments from the convenience of any device
Go