Correlation Between Plaza Retail and Constellation Software

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

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

Diversification Opportunities for Plaza Retail and Constellation Software

-0.21

Correlation Coefficient

Plaza Retail  Constellation Software

Very good diversification

The 3 months correlation between Plaza and Constellation is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Plaza Retail REIT and Constellation Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Constellation Software and Plaza Retail 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 Plaza Retail REIT 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 Plaza Retail i.e., Plaza Retail and Constellation Software go up and down completely randomly.

Pair Corralation between Plaza Retail and Constellation Software

Assuming the 90 days trading horizon Plaza Retail is expected to generate 78.16 times less return on investment than Constellation Software. But when comparing it to its historical volatility, Plaza Retail REIT is 1.78 times less risky than Constellation Software. It trades about 0.0 of its potential returns per unit of risk. Constellation Software is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  424,884  in Constellation Software on September 4, 2024 and sell it today you would earn a total of  54,146  from holding Constellation Software or generate 12.74% return on investment over 90 days.

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

Plaza Retail REIT  vs.  Constellation Software

Plaza Retail REIT

Risk-Adjusted Performance

0 of 100

Very Weak

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

Constellation Software

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Constellation Software are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Constellation Software may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Plaza Retail and Constellation Software

The main advantage of trading using opposite Plaza Retail and Constellation Software positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Plaza Retail 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 Plaza Retail REIT 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.