Correlation Between Constellation Software and First National

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

Diversification Opportunities for Constellation Software and First National

ConstellationFirstDiversified AwayConstellationFirstDiversified Away100%
0.48
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Constellation and First is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Software and First National Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First National Financial 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 First National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First National Financial has no effect on the direction of Constellation Software i.e., Constellation Software and First National go up and down completely randomly.

Pair Corralation between Constellation Software and First National

Assuming the 90 days trading horizon Constellation Software is expected to generate 1.69 times more return on investment than First National. However, Constellation Software is 1.69 times more volatile than First National Financial. It trades about 0.13 of its potential returns per unit of risk. First National Financial is currently generating about -0.05 per unit of risk. If you would invest  435,558  in Constellation Software on November 8, 2024 and sell it today you would earn a total of  54,706  from holding Constellation Software or generate 12.56% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Constellation Software  vs.  First National Financial

 Performance 
JavaScript chart by amCharts 3.21.15NovDec2025 -50510
JavaScript chart by amCharts 3.21.15CSU FN
       Timeline  
Constellation Software 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Constellation Software are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Constellation Software displayed solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb4,1004,2004,3004,4004,5004,6004,7004,8004,900
First National Financial 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days First National Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, First National is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb363738394041424344

Constellation Software and First National Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-4.81-3.6-2.39-1.190.01.272.563.855.14 0.10.20.30.4
JavaScript chart by amCharts 3.21.15CSU FN
       Returns  

Pair Trading with Constellation Software and First National

The main advantage of trading using opposite Constellation Software and First National positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Constellation Software position performs unexpectedly, First National 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 First National will offset losses from the drop in First National's long position.
The idea behind Constellation Software and First National Financial 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.

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