Correlation Between Constellation Brands and CenterPoint Energy

Can any of the company-specific risk be diversified away by investing in both Constellation Brands and CenterPoint Energy 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 CenterPoint Energy 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 CenterPoint Energy, you can compare the effects of market volatilities on Constellation Brands and CenterPoint Energy 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 CenterPoint Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Constellation Brands and CenterPoint Energy.

Diversification Opportunities for Constellation Brands and CenterPoint Energy

-0.34

Correlation Coefficient

Constellation Brands  CenterPoint Energy

Very good diversification

The 3 months correlation between Constellation and CenterPoint is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Brands Class and CenterPoint Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CenterPoint Energy 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 CenterPoint Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CenterPoint Energy has no effect on the direction of Constellation Brands i.e., Constellation Brands and CenterPoint Energy go up and down completely randomly.

Pair Corralation between Constellation Brands and CenterPoint Energy

Considering the 90-day investment horizon Constellation Brands Class is expected to under-perform the CenterPoint Energy. But the stock apears to be less risky and, when comparing its historical volatility, Constellation Brands Class is 1.2 times less risky than CenterPoint Energy. The stock trades about -0.54 of its potential returns per unit of risk. The CenterPoint Energy is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  3,136  in CenterPoint Energy on October 9, 2024 and sell it today you would lose (31.00) from holding CenterPoint Energy or give up 0.99% 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.  CenterPoint Energy

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.

CenterPoint Energy

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CenterPoint Energy are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, CenterPoint Energy may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Constellation Brands and CenterPoint Energy

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

The idea behind Constellation Brands Class and CenterPoint Energy 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.