Correlation Between Ford and Constellation Software

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

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

Diversification Opportunities for Ford and Constellation Software

-0.2

Correlation Coefficient

Ford  Constellation Software

Good diversification

The 3 months correlation between Ford and Constellation is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Constellation Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Constellation Software and Ford 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 Ford Motor are associated (or correlated) with Constellation Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Constellation Software has no effect on the direction of Ford i.e., Ford and Constellation Software go up and down completely randomly.

Pair Corralation between Ford and Constellation Software

Taking into account the 90-day investment horizon Ford is expected to generate 9.31 times less return on investment than Constellation Software. In addition to that, Ford is 1.48 times more volatile than Constellation Software. It trades about 0.01 of its total potential returns per unit of risk. Constellation Software is currently generating about 0.09 per unit of volatility. If you would invest  151,969  in Constellation Software on October 10, 2024 and sell it today you would earn a total of  132,531  from holding Constellation Software or generate 87.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.0%
Values	Daily Returns

Ford Motor  vs.  Constellation Software

Ford Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ford Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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 rather sound fundamental indicators, Constellation Software is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Ford and Constellation Software

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

The idea behind Ford Motor and Constellation Software 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.