Correlation Between Ralph Lauren and Columbia Sportswear

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

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

Diversification Opportunities for Ralph Lauren and Columbia Sportswear

0.32

Correlation Coefficient

Ralph Lauren  Columbia Sportswear

Weak diversification

The 3 months correlation between Ralph and Columbia is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Ralph Lauren Corp and Columbia Sportswear in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia Sportswear and Ralph Lauren 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 Ralph Lauren Corp are associated (or correlated) with Columbia Sportswear. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbia Sportswear has no effect on the direction of Ralph Lauren i.e., Ralph Lauren and Columbia Sportswear go up and down completely randomly.

Pair Corralation between Ralph Lauren and Columbia Sportswear

Allowing for the 90-day total investment horizon Ralph Lauren Corp is expected to under-perform the Columbia Sportswear. In addition to that, Ralph Lauren is 1.2 times more volatile than Columbia Sportswear. It trades about -0.37 of its total potential returns per unit of risk. Columbia Sportswear is currently generating about -0.09 per unit of volatility. If you would invest  7,733  in Columbia Sportswear on January 19, 2024 and sell it today you would lose (233.00) from holding Columbia Sportswear or give up 3.01% of portfolio value over 90 days.

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

Ralph Lauren Corp  vs.  Columbia Sportswear

Ralph Lauren Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ralph Lauren Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating essential indicators, Ralph Lauren disclosed solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Ralph Lauren and Columbia Sportswear

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

The idea behind Ralph Lauren Corp and Columbia Sportswear 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.

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 the Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..