Correlation Between Constellation Brands and NetEase

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

Diversification Opportunities for Constellation Brands and NetEase

0.16

Correlation Coefficient

Constellation Brands  NetEase

Average diversification

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

Pair Corralation between Constellation Brands and NetEase

Considering the 90-day investment horizon Constellation Brands is expected to generate 2.65 times less return on investment than NetEase. But when comparing it to its historical volatility, Constellation Brands Class is 2.1 times less risky than NetEase. It trades about 0.02 of its potential returns per unit of risk. NetEase is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  8,050  in NetEase on October 5, 2024 and sell it today you would earn a total of  788.00  from holding NetEase or generate 9.79% return on investment over 90 days.

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

Constellation Brands Class  vs.  NetEase

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.

NetEase

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NetEase has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Constellation Brands and NetEase

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

The idea behind Constellation Brands Class and NetEase 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.