Correlation Between Constellation Energy and Vertiv Holdings

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

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

Diversification Opportunities for Constellation Energy and Vertiv Holdings

0.61

Correlation Coefficient

Constellation Energy  Vertiv Holdings

Poor diversification

The 3 months correlation between Constellation and Vertiv is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Energy Corp and Vertiv Holdings Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vertiv Holdings and Constellation Energy 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 Constellation Energy Corp are associated (or correlated) with Vertiv Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vertiv Holdings has no effect on the direction of Constellation Energy i.e., Constellation Energy and Vertiv Holdings go up and down completely randomly.

Pair Corralation between Constellation Energy and Vertiv Holdings

Considering the 90-day investment horizon Constellation Energy is expected to generate 1.5 times less return on investment than Vertiv Holdings. In addition to that, Constellation Energy is 1.2 times more volatile than Vertiv Holdings Co. It trades about 0.11 of its total potential returns per unit of risk. Vertiv Holdings Co is currently generating about 0.21 per unit of volatility. If you would invest  8,301  in Vertiv Holdings Co on August 30, 2024 and sell it today you would earn a total of  4,393  from holding Vertiv Holdings Co or generate 52.92% return on investment over 90 days.

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

Constellation Energy Corp  vs.  Vertiv Holdings Co

Constellation Energy Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Constellation Energy Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Constellation Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Vertiv Holdings

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vertiv Holdings Co are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Vertiv Holdings unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Constellation Energy and Vertiv Holdings

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

The idea behind Constellation Energy Corp and Vertiv Holdings Co 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.