Correlation Between Constellation Software and Hampton Financial

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

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

Diversification Opportunities for Constellation Software and Hampton Financial

-0.52

Correlation Coefficient

Constellation Software  Hampton Financial

Excellent diversification

The 3 months correlation between Constellation and Hampton is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Software and Hampton Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hampton Financial 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 Hampton Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hampton Financial Corp has no effect on the direction of Constellation Software i.e., Constellation Software and Hampton Financial go up and down completely randomly.

Pair Corralation between Constellation Software and Hampton Financial

Assuming the 90 days trading horizon Constellation Software is expected to under-perform the Hampton Financial. But the stock apears to be less risky and, when comparing its historical volatility, Constellation Software is 1.31 times less risky than Hampton Financial. The stock trades about -0.01 of its potential returns per unit of risk. The Hampton Financial Corp is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  44.00  in Hampton Financial Corp on October 11, 2024 and sell it today you would earn a total of  1.00  from holding Hampton Financial Corp or generate 2.27% return on investment over 90 days.

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

Constellation Software  vs.  Hampton Financial Corp

Constellation Software

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Constellation Software has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Hampton Financial Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hampton Financial Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Hampton Financial is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Constellation Software and Hampton Financial

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

The idea behind Constellation Software and Hampton Financial 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.