Correlation Between Constellation Brands and Bowhead Specialty

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

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

Diversification Opportunities for Constellation Brands and Bowhead Specialty

-0.16

Correlation Coefficient

Constellation Brands  Bowhead Specialty

Good diversification

The 3 months correlation between Constellation and Bowhead is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Brands Class and Bowhead Specialty Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bowhead Specialty and Constellation Brands 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 Constellation Brands Class are associated (or correlated) with Bowhead Specialty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bowhead Specialty has no effect on the direction of Constellation Brands i.e., Constellation Brands and Bowhead Specialty go up and down completely randomly.

Pair Corralation between Constellation Brands and Bowhead Specialty

Considering the 90-day investment horizon Constellation Brands Class is expected to generate 0.51 times more return on investment than Bowhead Specialty. However, Constellation Brands Class is 1.95 times less risky than Bowhead Specialty. It trades about -0.47 of its potential returns per unit of risk. Bowhead Specialty Holdings is currently generating about -0.35 per unit of risk. If you would invest  23,989  in Constellation Brands Class on October 12, 2024 and sell it today you would lose (2,061) from holding Constellation Brands Class or give up 8.59% of portfolio value over 90 days.

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

Constellation Brands Class  vs.  Bowhead Specialty Holdings

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Bowhead Specialty

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bowhead Specialty Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Bowhead Specialty may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Constellation Brands and Bowhead Specialty

The main advantage of trading using opposite Constellation Brands and Bowhead Specialty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Constellation Brands position performs unexpectedly, Bowhead Specialty 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 Bowhead Specialty will offset losses from the drop in Bowhead Specialty's long position.

The idea behind Constellation Brands Class and Bowhead Specialty Holdings 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.

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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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.