Correlation Between Constellation Software and CGI

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

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

Diversification Opportunities for Constellation Software and CGI

0.7

Correlation Coefficient

Constellation Software  CGI

Poor diversification

The 3 months correlation between Constellation and CGI is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Software and CGI Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CGI Inc 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 CGI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CGI Inc has no effect on the direction of Constellation Software i.e., Constellation Software and CGI go up and down completely randomly.

Pair Corralation between Constellation Software and CGI

Assuming the 90 days trading horizon Constellation Software is expected to generate 1.07 times more return on investment than CGI. However, Constellation Software is 1.07 times more volatile than CGI Inc. It trades about 0.05 of its potential returns per unit of risk. CGI Inc is currently generating about -0.06 per unit of risk. If you would invest  478,874  in Constellation Software on November 30, 2024 and sell it today you would earn a total of  19,823  from holding Constellation Software or generate 4.14% 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.  CGI Inc

Constellation Software

Risk-Adjusted Performance

Weak

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.

CGI Inc

Risk-Adjusted Performance

Weak

Over the last 90 days CGI Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, CGI is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Constellation Software and CGI

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

The idea behind Constellation Software and CGI Inc 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 Global Correlations module to find global opportunities by holding instruments from different markets.