Correlation Between Salesforce and Constellation Brands

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

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

Diversification Opportunities for Salesforce and Constellation Brands

0.25

Correlation Coefficient

Salesforce  Constellation Brands

Modest diversification

The 3 months correlation between Salesforce and Constellation is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Salesforce and Constellation Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Constellation Brands and Salesforce 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 Salesforce are associated (or correlated) with Constellation Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Constellation Brands has no effect on the direction of Salesforce i.e., Salesforce and Constellation Brands go up and down completely randomly.

Pair Corralation between Salesforce and Constellation Brands

Assuming the 90 days trading horizon Salesforce is expected to generate 1.76 times more return on investment than Constellation Brands. However, Salesforce is 1.76 times more volatile than Constellation Brands. It trades about 0.18 of its potential returns per unit of risk. Constellation Brands is currently generating about -0.09 per unit of risk. If you would invest  25,340  in Salesforce on October 3, 2024 and sell it today you would earn a total of  6,660  from holding Salesforce or generate 26.28% return on investment over 90 days.

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

Salesforce  vs.  Constellation Brands

Salesforce

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Salesforce are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Salesforce unveiled solid returns over the last few months and may actually be approaching a breakup point.

Constellation Brands

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Salesforce and Constellation Brands

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

The idea behind Salesforce and Constellation Brands 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.

Check out your portfolio center.

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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.