Correlation Between Constellation Software and Coffee Holding

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

By analyzing existing cross correlation between Constellation Software and Coffee Holding Co, you can compare the effects of market volatilities on Constellation Software and Coffee Holding 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 Coffee Holding. Check out your portfolio center. Please also check ongoing floating volatility patterns of Constellation Software and Coffee Holding.

Diversification Opportunities for Constellation Software and Coffee Holding

0.82

Correlation Coefficient

Constellation Software  Coffee Holding

Very poor diversification

The 3 months correlation between Constellation and Coffee is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Software and Coffee Holding Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coffee Holding 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 Coffee Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coffee Holding has no effect on the direction of Constellation Software i.e., Constellation Software and Coffee Holding go up and down completely randomly.

Pair Corralation between Constellation Software and Coffee Holding

Assuming the 90 days trading horizon Constellation Software is expected to under-perform the Coffee Holding. But the stock apears to be less risky and, when comparing its historical volatility, Constellation Software is 3.41 times less risky than Coffee Holding. The stock trades about -0.17 of its potential returns per unit of risk. The Coffee Holding Co is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  332.00  in Coffee Holding Co on September 25, 2024 and sell it today you would earn a total of  4.00  from holding Coffee Holding Co or generate 1.2% return on investment over 90 days.

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

Constellation Software  vs.  Coffee Holding Co

Constellation Software

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Constellation Software are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, Constellation Software is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Coffee Holding

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Coffee Holding Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Coffee Holding reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Constellation Software and Coffee Holding

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

The idea behind Constellation Software and Coffee Holding Co 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.