Correlation Between Kaiser Aluminum and Constellation Software

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

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

Diversification Opportunities for Kaiser Aluminum and Constellation Software

0.66

Correlation Coefficient

Kaiser Aluminum  Constellation Software

Poor diversification

The 3 months correlation between Kaiser and Constellation is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Kaiser Aluminum and Constellation Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Constellation Software and Kaiser Aluminum 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 Kaiser Aluminum 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 Kaiser Aluminum i.e., Kaiser Aluminum and Constellation Software go up and down completely randomly.

Pair Corralation between Kaiser Aluminum and Constellation Software

Assuming the 90 days trading horizon Kaiser Aluminum is expected to generate 1.52 times less return on investment than Constellation Software. In addition to that, Kaiser Aluminum is 2.1 times more volatile than Constellation Software. It trades about 0.09 of its total potential returns per unit of risk. Constellation Software is currently generating about 0.29 per unit of volatility. If you would invest  289,500  in Constellation Software on August 31, 2024 and sell it today you would earn a total of  29,500  from holding Constellation Software or generate 10.19% return on investment over 90 days.

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

Kaiser Aluminum  vs.  Constellation Software

Kaiser Aluminum

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Kaiser Aluminum are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Kaiser Aluminum reported solid returns over the last few months and may actually be approaching a breakup point.

Constellation Software

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Constellation Software are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, Constellation Software may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Kaiser Aluminum and Constellation Software

The main advantage of trading using opposite Kaiser Aluminum and Constellation Software positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kaiser Aluminum 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 Kaiser Aluminum 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.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..