Correlation Between Smith Douglas and Constellation Brands

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

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

Diversification Opportunities for Smith Douglas and Constellation Brands

0.48

Correlation Coefficient

Smith Douglas  Constellation Brands

Very weak diversification

The 3 months correlation between Smith and Constellation is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Smith Douglas Homes and Constellation Brands Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Constellation Brands and Smith Douglas 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 Smith Douglas Homes 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 Smith Douglas i.e., Smith Douglas and Constellation Brands go up and down completely randomly.

Pair Corralation between Smith Douglas and Constellation Brands

Given the investment horizon of 90 days Smith Douglas Homes is expected to under-perform the Constellation Brands. In addition to that, Smith Douglas is 2.24 times more volatile than Constellation Brands Class. It trades about -0.04 of its total potential returns per unit of risk. Constellation Brands Class is currently generating about -0.06 per unit of volatility. If you would invest  25,258  in Constellation Brands Class on September 16, 2024 and sell it today you would lose (1,292) from holding Constellation Brands Class or give up 5.12% of portfolio value over 90 days.

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

Smith Douglas Homes  vs.  Constellation Brands Class

Smith Douglas Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smith Douglas Homes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Constellation Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Constellation Brands Class has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Constellation Brands is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Smith Douglas and Constellation Brands

The main advantage of trading using opposite Smith Douglas and Constellation Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smith Douglas 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 Smith Douglas Homes and Constellation Brands Class 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.