Correlation Between American Balanced and Columbia Balanced

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

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

Diversification Opportunities for American Balanced and Columbia Balanced

0.99

Correlation Coefficient

American Balanced  Columbia Balanced

No risk reduction

The 3 months correlation between American and Columbia is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced Fund and Columbia Balanced Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia Balanced and American Balanced 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 American Balanced Fund are associated (or correlated) with Columbia Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbia Balanced has no effect on the direction of American Balanced i.e., American Balanced and Columbia Balanced go up and down completely randomly.

Pair Corralation between American Balanced and Columbia Balanced

Assuming the 90 days horizon American Balanced is expected to generate 1.12 times less return on investment than Columbia Balanced. But when comparing it to its historical volatility, American Balanced Fund is 1.08 times less risky than Columbia Balanced. It trades about 0.29 of its potential returns per unit of risk. Columbia Balanced Fund is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  4,991  in Columbia Balanced Fund on May 6, 2025 and sell it today you would earn a total of  462.00  from holding Columbia Balanced Fund or generate 9.26% return on investment over 90 days.

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

American Balanced Fund  vs.  Columbia Balanced Fund

American Balanced

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Balanced Fund are ranked lower than 22 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, American Balanced may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Columbia Balanced

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Columbia Balanced Fund are ranked lower than 23 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Columbia Balanced may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with American Balanced and Columbia Balanced

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

The idea behind American Balanced Fund and Columbia Balanced Fund 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.