Correlation Between Constellation Brands and Transocean

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

Diversification Opportunities for Constellation Brands and Transocean

0.36

Correlation Coefficient

Constellation Brands  Transocean

Weak diversification

The 3 months correlation between Constellation and Transocean is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Brands Class and Transocean in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transocean 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 Transocean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transocean has no effect on the direction of Constellation Brands i.e., Constellation Brands and Transocean go up and down completely randomly.

Pair Corralation between Constellation Brands and Transocean

Considering the 90-day investment horizon Constellation Brands Class is expected to under-perform the Transocean. But the stock apears to be less risky and, when comparing its historical volatility, Constellation Brands Class is 1.13 times less risky than Transocean. The stock trades about -0.16 of its potential returns per unit of risk. The Transocean is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  412.00  in Transocean on October 16, 2024 and sell it today you would lose (3.00) from holding Transocean or give up 0.73% of portfolio value over 90 days.

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

Constellation Brands Class  vs.  Transocean

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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Transocean

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transocean has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, Transocean is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Constellation Brands and Transocean

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

The idea behind Constellation Brands Class and Transocean 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.