Correlation Between CONSTELLATION and Universal

Can any of the company-specific risk be diversified away by investing in both CONSTELLATION and Universal 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 and Universal into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CONSTELLATION BRANDS INC and Universal, you can compare the effects of market volatilities on CONSTELLATION and Universal 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 with a short position of Universal. Check out your portfolio center. Please also check ongoing floating volatility patterns of CONSTELLATION and Universal.

Diversification Opportunities for CONSTELLATION and Universal

-0.4

Correlation Coefficient

CONSTELLATION  Universal

Very good diversification

The 3 months correlation between CONSTELLATION and Universal is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding CONSTELLATION BRANDS INC and Universal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal and CONSTELLATION 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 INC are associated (or correlated) with Universal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal has no effect on the direction of CONSTELLATION i.e., CONSTELLATION and Universal go up and down completely randomly.

Pair Corralation between CONSTELLATION and Universal

Assuming the 90 days trading horizon CONSTELLATION BRANDS INC is expected to generate 68.78 times more return on investment than Universal. However, CONSTELLATION is 68.78 times more volatile than Universal. It trades about 0.09 of its potential returns per unit of risk. Universal is currently generating about 0.02 per unit of risk. If you would invest  9,790  in CONSTELLATION BRANDS INC on October 21, 2024 and sell it today you would lose (33.00) from holding CONSTELLATION BRANDS INC or give up 0.34% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	72.98%
Values	Daily Returns

CONSTELLATION BRANDS INC  vs.  Universal

CONSTELLATION BRANDS INC

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CONSTELLATION BRANDS INC are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, CONSTELLATION is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Universal

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Universal are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Universal is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with CONSTELLATION and Universal

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

The idea behind CONSTELLATION BRANDS INC and Universal 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.