Correlation Between Constellation Software and Birchtech Corp

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

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

Diversification Opportunities for Constellation Software and Birchtech Corp

-0.2

Correlation Coefficient

Constellation Software  Birchtech Corp

Good diversification

The 3 months correlation between Constellation and Birchtech is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Software and Birchtech Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Birchtech Corp 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 Birchtech Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Birchtech Corp has no effect on the direction of Constellation Software i.e., Constellation Software and Birchtech Corp go up and down completely randomly.

Pair Corralation between Constellation Software and Birchtech Corp

Assuming the 90 days trading horizon Constellation Software is expected to generate 2.81 times less return on investment than Birchtech Corp. But when comparing it to its historical volatility, Constellation Software is 3.08 times less risky than Birchtech Corp. It trades about 0.05 of its potential returns per unit of risk. Birchtech Corp is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  70.00  in Birchtech Corp on December 28, 2024 and sell it today you would earn a total of  5.00  from holding Birchtech Corp or generate 7.14% return on investment over 90 days.

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

Constellation Software  vs.  Birchtech Corp

Constellation Software

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Constellation Software are ranked lower than 4 (%) 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.

Birchtech Corp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Birchtech Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Birchtech Corp displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Constellation Software and Birchtech Corp

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

The idea behind Constellation Software and Birchtech Corp 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 Transaction History module to view history of all your transactions and understand their impact on performance.