Correlation Between Constellation Software and Postmedia Network

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

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

Diversification Opportunities for Constellation Software and Postmedia Network

-0.56

Correlation Coefficient

Constellation Software  Postmedia Network

Excellent diversification

The 3 months correlation between Constellation and Postmedia is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Software and Postmedia Network Canada in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Postmedia Network Canada 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 Postmedia Network. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Postmedia Network Canada has no effect on the direction of Constellation Software i.e., Constellation Software and Postmedia Network go up and down completely randomly.

Pair Corralation between Constellation Software and Postmedia Network

Assuming the 90 days trading horizon Constellation Software is expected to generate 0.25 times more return on investment than Postmedia Network. However, Constellation Software is 3.92 times less risky than Postmedia Network. It trades about 0.11 of its potential returns per unit of risk. Postmedia Network Canada is currently generating about 0.02 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 Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Constellation Software  vs.  Postmedia Network Canada

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.

Postmedia Network Canada

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Postmedia Network Canada has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Postmedia Network 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 Postmedia Network

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

The idea behind Constellation Software and Postmedia Network Canada 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 Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..