Correlation Between Rocky Mountain and Constellation Software

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

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

Diversification Opportunities for Rocky Mountain and Constellation Software

-0.29

Correlation Coefficient

Rocky Mountain  Constellation Software

Very good diversification

The 3 months correlation between Rocky and Constellation is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Rocky Mountain Liquor and Constellation Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Constellation Software and Rocky Mountain 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 Rocky Mountain Liquor 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 Rocky Mountain i.e., Rocky Mountain and Constellation Software go up and down completely randomly.

Pair Corralation between Rocky Mountain and Constellation Software

Assuming the 90 days horizon Rocky Mountain Liquor is expected to under-perform the Constellation Software. In addition to that, Rocky Mountain is 3.24 times more volatile than Constellation Software. It trades about -0.05 of its total potential returns per unit of risk. Constellation Software is currently generating about 0.04 per unit of volatility. If you would invest  451,027  in Constellation Software on December 22, 2024 and sell it today you would earn a total of  11,639  from holding Constellation Software or generate 2.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Rocky Mountain Liquor  vs.  Constellation Software

Rocky Mountain Liquor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rocky Mountain Liquor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Constellation Software

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Constellation Software are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Constellation Software is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Rocky Mountain and Constellation Software

The main advantage of trading using opposite Rocky Mountain and Constellation Software positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rocky Mountain 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 Rocky Mountain Liquor 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .