Correlation Between Columbia Select and Vanguard Small-cap

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

By analyzing existing cross correlation between Columbia Select Smaller Cap and Vanguard Small Cap Value, you can compare the effects of market volatilities on Columbia Select and Vanguard Small-cap 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 Select with a short position of Vanguard Small-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Columbia Select and Vanguard Small-cap.

Diversification Opportunities for Columbia Select and Vanguard Small-cap

0.81

Correlation Coefficient

Columbia Select  Vanguard Small-cap

Very poor diversification

The 3 months correlation between Columbia and Vanguard is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Columbia Select Smaller Cap and Vanguard Small Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small Cap and Columbia Select 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 Select Smaller Cap are associated (or correlated) with Vanguard Small-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Small Cap has no effect on the direction of Columbia Select i.e., Columbia Select and Vanguard Small-cap go up and down completely randomly.

Pair Corralation between Columbia Select and Vanguard Small-cap

Assuming the 90 days horizon Columbia Select Smaller Cap is expected to generate 0.99 times more return on investment than Vanguard Small-cap. However, Columbia Select Smaller Cap is 1.01 times less risky than Vanguard Small-cap. It trades about -0.04 of its potential returns per unit of risk. Vanguard Small Cap Value is currently generating about -0.09 per unit of risk. If you would invest  1,911  in Columbia Select Smaller Cap on January 26, 2024 and sell it today you would lose (19.00) from holding Columbia Select Smaller Cap or give up 0.99% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

Columbia Select Smaller Cap  vs.  Vanguard Small Cap Value

Columbia Select Smaller

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Columbia Select Smaller Cap are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Columbia Select is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Small Cap

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Value are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Small-cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Columbia Select and Vanguard Small-cap

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

The idea behind Columbia Select Smaller Cap and Vanguard Small Cap Value 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.