Correlation Between NYSE Composite and Columbia Limited

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Can any of the company-specific risk be diversified away by investing in both NYSE Composite 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 NYSE Composite and Columbia Limited into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NYSE Composite and Columbia Limited Duration, you can compare the effects of market volatilities on NYSE Composite 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 NYSE Composite with a short position of Columbia Limited. Check out your portfolio center. Please also check ongoing floating volatility patterns of NYSE Composite and Columbia Limited.

Diversification Opportunities for NYSE Composite and Columbia Limited

 0.6 Correlation Coefficient

Poor diversification

The 3 months correlation between NYSE and Columbia is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite 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 NYSE Composite 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 NYSE Composite 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 NYSE Composite i.e., NYSE Composite and Columbia Limited go up and down completely randomly.

Pair Corralation between NYSE Composite and Columbia Limited

Assuming the 90 days trading horizon NYSE Composite is expected to under-perform the Columbia Limited. In addition to that, NYSE Composite is 4.12 times more volatile than Columbia Limited Duration. It trades about -0.09 of its total potential returns per unit of risk. Columbia Limited Duration is currently generating about 0.19 per unit of volatility. If you would invest  964.00  in Columbia Limited Duration on March 15, 2024 and sell it today you would earn a total of  6.00  from holding Columbia Limited Duration or generate 0.62% return on investment over 90 days.
 Time Period 3 Months [change] Direction Moves Together Strength Significant Accuracy 100.0% Values Daily Returns

NYSE Composite  vs.  Columbia Limited Duration

 Performance
 Timeline

NYSE Composite and Columbia Limited Volatility Contrast

 Predicted Return Density
 Returns

Pair Trading with NYSE Composite and Columbia Limited

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