Correlation Between CDN IMPERIAL and Constellation Software

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

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

Diversification Opportunities for CDN IMPERIAL and Constellation Software

-0.5

Correlation Coefficient

CDN IMPERIAL  Constellation Software

Very good diversification

The 3 months correlation between CDN and Constellation is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding CDN IMPERIAL BANK and Constellation Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Constellation Software and CDN IMPERIAL 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 CDN IMPERIAL BANK 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 CDN IMPERIAL i.e., CDN IMPERIAL and Constellation Software go up and down completely randomly.

Pair Corralation between CDN IMPERIAL and Constellation Software

Assuming the 90 days trading horizon CDN IMPERIAL BANK is expected to under-perform the Constellation Software. But the stock apears to be less risky and, when comparing its historical volatility, CDN IMPERIAL BANK is 1.07 times less risky than Constellation Software. The stock trades about -0.04 of its potential returns per unit of risk. The Constellation Software is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  323,892  in Constellation Software on December 3, 2024 and sell it today you would earn a total of  3,608  from holding Constellation Software or generate 1.11% return on investment over 90 days.

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

CDN IMPERIAL BANK  vs.  Constellation Software

CDN IMPERIAL BANK

Risk-Adjusted Performance

Very Weak

Over the last 90 days CDN IMPERIAL BANK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward indicators, CDN IMPERIAL is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Constellation Software

Risk-Adjusted Performance

Insignificant

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

Pair Trading with CDN IMPERIAL and Constellation Software

The main advantage of trading using opposite CDN IMPERIAL and Constellation Software positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CDN IMPERIAL 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 CDN IMPERIAL BANK 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.

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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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.