Correlation Between JAPAN AIRLINES and Constellation Brands

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

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

Diversification Opportunities for JAPAN AIRLINES and Constellation Brands

0.24

Correlation Coefficient

JAPAN AIRLINES  Constellation Brands

Modest diversification

The 3 months correlation between JAPAN and Constellation is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding JAPAN AIRLINES and Constellation Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Constellation Brands and JAPAN AIRLINES 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 JAPAN AIRLINES 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 JAPAN AIRLINES i.e., JAPAN AIRLINES and Constellation Brands go up and down completely randomly.

Pair Corralation between JAPAN AIRLINES and Constellation Brands

Assuming the 90 days trading horizon JAPAN AIRLINES is expected to generate 0.23 times more return on investment than Constellation Brands. However, JAPAN AIRLINES is 4.37 times less risky than Constellation Brands. It trades about -0.24 of its potential returns per unit of risk. Constellation Brands is currently generating about -0.25 per unit of risk. If you would invest  1,530  in JAPAN AIRLINES on October 21, 2024 and sell it today you would lose (60.00) from holding JAPAN AIRLINES or give up 3.92% of portfolio value over 90 days.

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

JAPAN AIRLINES  vs.  Constellation Brands

JAPAN AIRLINES

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JAPAN AIRLINES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, JAPAN AIRLINES is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

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 fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with JAPAN AIRLINES and Constellation Brands

The main advantage of trading using opposite JAPAN AIRLINES and Constellation Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JAPAN AIRLINES 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 JAPAN AIRLINES 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.