Correlation Between Constellation Software and Pembina Pipeline

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

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

Diversification Opportunities for Constellation Software and Pembina Pipeline

-0.27

Correlation Coefficient

Constellation Software  Pembina Pipeline

Very good diversification

The 3 months correlation between Constellation and Pembina is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Software and Pembina Pipeline Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pembina Pipeline 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 Pembina Pipeline. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pembina Pipeline Corp has no effect on the direction of Constellation Software i.e., Constellation Software and Pembina Pipeline go up and down completely randomly.

Pair Corralation between Constellation Software and Pembina Pipeline

Assuming the 90 days trading horizon Constellation Software is expected to generate 1.51 times more return on investment than Pembina Pipeline. However, Constellation Software is 1.51 times more volatile than Pembina Pipeline Corp. It trades about -0.04 of its potential returns per unit of risk. Pembina Pipeline Corp is currently generating about -0.15 per unit of risk. If you would invest  433,859  in Constellation Software on October 10, 2024 and sell it today you would lose (17,590) from holding Constellation Software or give up 4.05% of portfolio value over 90 days.

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

Constellation Software  vs.  Pembina Pipeline 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.

Pembina Pipeline Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pembina Pipeline Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's essential indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Constellation Software and Pembina Pipeline

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

The idea behind Constellation Software and Pembina Pipeline 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.