Correlation Between Constellation Software and Aurora Cannabis

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Can any of the company-specific risk be diversified away by investing in both Constellation Software and Aurora Cannabis 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 Software and Aurora Cannabis into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Constellation Software and Aurora Cannabis, you can compare the effects of market volatilities on Constellation Software and Aurora Cannabis 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 Software with a short position of Aurora Cannabis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Constellation Software and Aurora Cannabis.

Diversification Opportunities for Constellation Software and Aurora Cannabis

-0.61
  Correlation Coefficient

Excellent diversification

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

Pair Corralation between Constellation Software and Aurora Cannabis

Assuming the 90 days trading horizon Constellation Software is expected to generate 0.21 times more return on investment than Aurora Cannabis. However, Constellation Software is 4.71 times less risky than Aurora Cannabis. It trades about 0.11 of its potential returns per unit of risk. Aurora Cannabis is currently generating about 0.0 per unit of risk. If you would invest  226,312  in Constellation Software on October 5, 2024 and sell it today you would earn a total of  217,705  from holding Constellation Software or generate 96.2% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Constellation Software  vs.  Aurora Cannabis

 Performance 
       Timeline  
Constellation Software 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Constellation Software are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.
Aurora Cannabis 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Aurora Cannabis has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's fundamental drivers remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Constellation Software and Aurora Cannabis Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Constellation Software and Aurora Cannabis

The main advantage of trading using opposite Constellation Software and Aurora Cannabis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Constellation Software position performs unexpectedly, Aurora Cannabis 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 Aurora Cannabis will offset losses from the drop in Aurora Cannabis' long position.
The idea behind Constellation Software and Aurora Cannabis 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.

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