Correlation Between Marathon Oil and Columbia Limited

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

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

Diversification Opportunities for Marathon Oil and Columbia Limited

0.31

Correlation Coefficient

Marathon Oil  Columbia Limited

Weak diversification

The 3 months correlation between Marathon and Columbia is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Marathon Oil 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 Marathon Oil 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 Marathon Oil 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 Marathon Oil i.e., Marathon Oil and Columbia Limited go up and down completely randomly.

Pair Corralation between Marathon Oil and Columbia Limited

Considering the 90-day investment horizon Marathon Oil is expected to generate 7.5 times more return on investment than Columbia Limited. However, Marathon Oil is 7.5 times more volatile than Columbia Limited Duration. It trades about 0.34 of its potential returns per unit of risk. Columbia Limited Duration is currently generating about 0.02 per unit of risk. If you would invest  2,378  in Marathon Oil on January 24, 2024 and sell it today you would earn a total of  404.00  from holding Marathon Oil or generate 16.99% return on investment over 90 days.

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

Marathon Oil  vs.  Columbia Limited Duration

Marathon Oil

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Marathon Oil are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Marathon Oil displayed solid returns over the last few months and may actually be approaching a breakup point.

Columbia Limited Duration

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Columbia Limited Duration has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Columbia Limited is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Marathon Oil and Columbia Limited

The main advantage of trading using opposite Marathon Oil and Columbia Limited positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Marathon Oil 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 idea behind Marathon Oil 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.

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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.