Correlation Between Constellation Software and JD SPORTS

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

By analyzing existing cross correlation between Constellation Software and JD SPORTS FASH, you can compare the effects of market volatilities on Constellation Software and JD SPORTS 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 Software with a short position of JD SPORTS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Constellation Software and JD SPORTS.

Diversification Opportunities for Constellation Software and JD SPORTS

-0.74

Correlation Coefficient

Constellation Software  JD SPORTS

Pay attention - limited upside

The 3 months correlation between Constellation and 9JD is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Software and JD SPORTS FASH in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JD SPORTS FASH and Constellation Software 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 Software are associated (or correlated) with JD SPORTS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JD SPORTS FASH has no effect on the direction of Constellation Software i.e., Constellation Software and JD SPORTS go up and down completely randomly.

Pair Corralation between Constellation Software and JD SPORTS

Assuming the 90 days trading horizon Constellation Software is expected to generate 0.42 times more return on investment than JD SPORTS. However, Constellation Software is 2.39 times less risky than JD SPORTS. It trades about 0.12 of its potential returns per unit of risk. JD SPORTS FASH is currently generating about -0.02 per unit of risk. If you would invest  150,713  in Constellation Software on October 5, 2024 and sell it today you would earn a total of  152,287  from holding Constellation Software or generate 101.04% return on investment over 90 days.

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

Constellation Software  vs.  JD SPORTS FASH

Constellation Software

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Constellation Software has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Constellation Software is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

JD SPORTS FASH

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JD SPORTS FASH 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 basic 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 Software and JD SPORTS

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

The idea behind Constellation Software and JD SPORTS FASH 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.