Correlation Between Constellation Brands and Lion One

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

Diversification Opportunities for Constellation Brands and Lion One

0.47

Correlation Coefficient

Constellation Brands  Lion One

Very weak diversification

The 3 months correlation between Constellation and Lion is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Brands Class and Lion One Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lion One Metals 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 Lion One. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lion One Metals has no effect on the direction of Constellation Brands i.e., Constellation Brands and Lion One go up and down completely randomly.

Pair Corralation between Constellation Brands and Lion One

Considering the 90-day investment horizon Constellation Brands Class is expected to generate 0.4 times more return on investment than Lion One. However, Constellation Brands Class is 2.53 times less risky than Lion One. It trades about -0.16 of its potential returns per unit of risk. Lion One Metals is currently generating about -0.15 per unit of risk. If you would invest  25,659  in Constellation Brands Class on October 1, 2024 and sell it today you would lose (3,388) from holding Constellation Brands Class or give up 13.2% of portfolio value over 90 days.

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

Constellation Brands Class  vs.  Lion One Metals

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 weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Lion One Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lion One Metals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Constellation Brands and Lion One

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

The idea behind Constellation Brands Class and Lion One Metals 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.