Correlation Between Constellation Brands and First Republic

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

Diversification Opportunities for Constellation Brands and First Republic

0.68

Correlation Coefficient

Constellation Brands  First Republic

Poor diversification

The 3 months correlation between Constellation and First is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Brands Class and First Republic Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Republic Bank 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 First Republic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Republic Bank has no effect on the direction of Constellation Brands i.e., Constellation Brands and First Republic go up and down completely randomly.

Pair Corralation between Constellation Brands and First Republic

Considering the 90-day investment horizon Constellation Brands Class is expected to generate 0.04 times more return on investment than First Republic. However, Constellation Brands Class is 28.35 times less risky than First Republic. It trades about 0.01 of its potential returns per unit of risk. First Republic Bank is currently generating about -0.01 per unit of risk. If you would invest  22,077  in Constellation Brands Class on September 23, 2024 and sell it today you would earn a total of  686.00  from holding Constellation Brands Class or generate 3.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	27.77%
Values	Daily Returns

Constellation Brands Class  vs.  First Republic Bank

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.

First Republic Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Republic Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent primary indicators, First Republic is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Constellation Brands and First Republic

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

The idea behind Constellation Brands Class and First Republic Bank 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.