Correlation Between Columbia Sportswear and AeroVironment

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

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

Diversification Opportunities for Columbia Sportswear and AeroVironment

-0.22

Correlation Coefficient

Columbia Sportswear  AeroVironment

Very good diversification

The 3 months correlation between Columbia and AeroVironment is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Columbia Sportswear and AeroVironment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AeroVironment and Columbia Sportswear 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 Sportswear are associated (or correlated) with AeroVironment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AeroVironment has no effect on the direction of Columbia Sportswear i.e., Columbia Sportswear and AeroVironment go up and down completely randomly.

Pair Corralation between Columbia Sportswear and AeroVironment

Given the investment horizon of 90 days Columbia Sportswear is expected to generate 27.17 times less return on investment than AeroVironment. But when comparing it to its historical volatility, Columbia Sportswear is 1.77 times less risky than AeroVironment. It trades about 0.0 of its potential returns per unit of risk. AeroVironment is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  8,573  in AeroVironment on January 20, 2024 and sell it today you would earn a total of  6,429  from holding AeroVironment or generate 74.99% return on investment over 90 days.

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

Columbia Sportswear  vs.  AeroVironment

Columbia Sportswear

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Columbia Sportswear has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, Columbia Sportswear is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

AeroVironment

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AeroVironment are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, AeroVironment showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Columbia Sportswear and AeroVironment

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

The idea behind Columbia Sportswear and AeroVironment 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.