Correlation Between Constellation Brands and Tokyo Electron

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

Diversification Opportunities for Constellation Brands and Tokyo Electron

0.51

Correlation Coefficient

Constellation Brands  Tokyo Electron

Very weak diversification

The 3 months correlation between Constellation and Tokyo is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Brands Class and Tokyo Electron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tokyo Electron 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 Tokyo Electron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tokyo Electron has no effect on the direction of Constellation Brands i.e., Constellation Brands and Tokyo Electron go up and down completely randomly.

Pair Corralation between Constellation Brands and Tokyo Electron

Considering the 90-day investment horizon Constellation Brands is expected to generate 11.3 times less return on investment than Tokyo Electron. But when comparing it to its historical volatility, Constellation Brands Class is 2.56 times less risky than Tokyo Electron. It trades about 0.01 of its potential returns per unit of risk. Tokyo Electron is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  11,282  in Tokyo Electron on October 6, 2024 and sell it today you would earn a total of  3,459  from holding Tokyo Electron or generate 30.66% return on investment over 90 days.

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

Constellation Brands Class  vs.  Tokyo Electron

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.

Tokyo Electron

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Constellation Brands and Tokyo Electron

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

The idea behind Constellation Brands Class and Tokyo Electron 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.