Correlation Between Brookfield and Constellation Software

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

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

Diversification Opportunities for Brookfield and Constellation Software

-0.29

Correlation Coefficient

Brookfield  Constellation Software

Very good diversification

The 3 months correlation between Brookfield and Constellation is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Brookfield and Constellation Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Constellation Software and Brookfield 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 Brookfield are associated (or correlated) with Constellation Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Constellation Software has no effect on the direction of Brookfield i.e., Brookfield and Constellation Software go up and down completely randomly.

Pair Corralation between Brookfield and Constellation Software

Assuming the 90 days trading horizon Brookfield is expected to generate 1.49 times less return on investment than Constellation Software. But when comparing it to its historical volatility, Brookfield is 1.81 times less risky than Constellation Software. It trades about 0.1 of its potential returns per unit of risk. Constellation Software is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  315,609  in Constellation Software on October 11, 2024 and sell it today you would earn a total of  116,891  from holding Constellation Software or generate 37.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.65%
Values	Daily Returns

Brookfield  vs.  Constellation Software

Brookfield

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Brookfield is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Constellation Software

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Constellation Software has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Constellation Software is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Brookfield and Constellation Software

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

The idea behind Brookfield and Constellation Software 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.