Correlation Between First Merchants and CONSTELLATION

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

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

Diversification Opportunities for First Merchants and CONSTELLATION

-0.3

Correlation Coefficient

First Merchants  CONSTELLATION

Very good diversification

The 3 months correlation between First and CONSTELLATION is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding First Merchants and CONSTELLATION BRANDS INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CONSTELLATION BRANDS INC and First Merchants 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 First Merchants are associated (or correlated) with CONSTELLATION. 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 INC has no effect on the direction of First Merchants i.e., First Merchants and CONSTELLATION go up and down completely randomly.

Pair Corralation between First Merchants and CONSTELLATION

Given the investment horizon of 90 days First Merchants is expected to generate 8.7 times more return on investment than CONSTELLATION. However, First Merchants is 8.7 times more volatile than CONSTELLATION BRANDS INC. It trades about 0.08 of its potential returns per unit of risk. CONSTELLATION BRANDS INC is currently generating about -0.15 per unit of risk. If you would invest  3,544  in First Merchants on October 3, 2024 and sell it today you would earn a total of  445.00  from holding First Merchants or generate 12.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	91.94%
Values	Daily Returns

First Merchants  vs.  CONSTELLATION BRANDS INC

First Merchants

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Merchants are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady primary indicators, First Merchants exhibited solid returns over the last few months and may actually be approaching a breakup point.

CONSTELLATION BRANDS INC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CONSTELLATION BRANDS INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CONSTELLATION is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Merchants and CONSTELLATION

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

The idea behind First Merchants and CONSTELLATION BRANDS INC 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.