Correlation Between Constellation Brands and Summit Materials

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

Diversification Opportunities for Constellation Brands and Summit Materials

-0.54

Correlation Coefficient

Constellation Brands  Summit Materials

Excellent diversification

The 3 months correlation between Constellation and Summit is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Brands Class and Summit Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Materials 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 Summit Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Materials has no effect on the direction of Constellation Brands i.e., Constellation Brands and Summit Materials go up and down completely randomly.

Pair Corralation between Constellation Brands and Summit Materials

Considering the 90-day investment horizon Constellation Brands Class is expected to under-perform the Summit Materials. But the stock apears to be less risky and, when comparing its historical volatility, Constellation Brands Class is 1.43 times less risky than Summit Materials. The stock trades about -0.16 of its potential returns per unit of risk. The Summit Materials is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  3,782  in Summit Materials on October 1, 2024 and sell it today you would earn a total of  1,274  from holding Summit Materials or generate 33.69% return on investment over 90 days.

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

Constellation Brands Class  vs.  Summit Materials

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.

Summit Materials

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Materials are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Summit Materials displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Constellation Brands and Summit Materials

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

The idea behind Constellation Brands Class and Summit Materials 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .