Correlation Between Salesforce and Constellation Software

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

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

Diversification Opportunities for Salesforce and Constellation Software

0.74

Correlation Coefficient

Salesforce  Constellation Software

Poor diversification

The 3 months correlation between Salesforce and Constellation is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Salesforce and Constellation Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Constellation Software and Salesforce 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 Salesforce 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 Salesforce i.e., Salesforce and Constellation Software go up and down completely randomly.

Pair Corralation between Salesforce and Constellation Software

Considering the 90-day investment horizon Salesforce is expected to generate 1.36 times more return on investment than Constellation Software. However, Salesforce is 1.36 times more volatile than Constellation Software. It trades about 0.09 of its potential returns per unit of risk. Constellation Software is currently generating about 0.09 per unit of risk. If you would invest  14,560  in Salesforce on October 10, 2024 and sell it today you would earn a total of  17,933  from holding Salesforce or generate 123.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.0%
Values	Daily Returns

Salesforce  vs.  Constellation Software

Salesforce

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Salesforce are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Salesforce displayed solid returns over the last few months and may actually be approaching a breakup point.

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 rather sound fundamental indicators, Constellation Software is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Salesforce and Constellation Software

The main advantage of trading using opposite Salesforce and Constellation Software positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Salesforce 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 Salesforce 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.