Correlation Between Constellation Software and Dexterra

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

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

Diversification Opportunities for Constellation Software and Dexterra

0.65

Correlation Coefficient

Constellation Software  Dexterra

Poor diversification

The 3 months correlation between Constellation and Dexterra is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Software and Dexterra Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dexterra Group 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 Dexterra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dexterra Group has no effect on the direction of Constellation Software i.e., Constellation Software and Dexterra go up and down completely randomly.

Pair Corralation between Constellation Software and Dexterra

Assuming the 90 days trading horizon Constellation Software is expected to generate 0.96 times more return on investment than Dexterra. However, Constellation Software is 1.04 times less risky than Dexterra. It trades about 0.11 of its potential returns per unit of risk. Dexterra Group is currently generating about 0.09 per unit of risk. If you would invest  286,538  in Constellation Software on October 5, 2024 and sell it today you would earn a total of  159,306  from holding Constellation Software or generate 55.6% return on investment over 90 days.

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

Constellation Software  vs.  Dexterra Group

Constellation Software

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Constellation Software are ranked lower than 3 (%) 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.

Dexterra Group

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dexterra Group are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Dexterra displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Constellation Software and Dexterra

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

The idea behind Constellation Software and Dexterra Group 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.