Correlation Between Constellation Software and Canoe EIT

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

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

Diversification Opportunities for Constellation Software and Canoe EIT

0.8

Correlation Coefficient

Constellation Software  Canoe EIT

Very poor diversification

The 3 months correlation between Constellation and Canoe is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Software and Canoe EIT Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canoe EIT Income 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 Canoe EIT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canoe EIT Income has no effect on the direction of Constellation Software i.e., Constellation Software and Canoe EIT go up and down completely randomly.

Pair Corralation between Constellation Software and Canoe EIT

Assuming the 90 days trading horizon Constellation Software is expected to generate 2.5 times more return on investment than Canoe EIT. However, Constellation Software is 2.5 times more volatile than Canoe EIT Income. It trades about 0.11 of its potential returns per unit of risk. Canoe EIT Income is currently generating about 0.1 per unit of risk. If you would invest  225,514  in Constellation Software on October 4, 2024 and sell it today you would earn a total of  218,977  from holding Constellation Software or generate 97.1% return on investment over 90 days.

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

Constellation Software  vs.  Canoe EIT Income

Constellation Software

Risk-Adjusted Performance

2 of 100

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.

Canoe EIT Income

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Canoe EIT Income are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Canoe EIT is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Constellation Software and Canoe EIT

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

The idea behind Constellation Software and Canoe EIT Income 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.