Correlation Between Constellation Software and Rheinmetall

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

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

Diversification Opportunities for Constellation Software and Rheinmetall

0.46

Correlation Coefficient

Constellation Software  Rheinmetall

Very weak diversification

The 3 months correlation between Constellation and Rheinmetall is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Software and Rheinmetall AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rheinmetall AG 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 Rheinmetall. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rheinmetall AG has no effect on the direction of Constellation Software i.e., Constellation Software and Rheinmetall go up and down completely randomly.

Pair Corralation between Constellation Software and Rheinmetall

Assuming the 90 days trading horizon Constellation Software is expected to generate 14.48 times less return on investment than Rheinmetall. But when comparing it to its historical volatility, Constellation Software is 2.32 times less risky than Rheinmetall. It trades about 0.04 of its potential returns per unit of risk. Rheinmetall AG is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  62,320  in Rheinmetall AG on November 29, 2024 and sell it today you would earn a total of  34,280  from holding Rheinmetall AG or generate 55.01% return on investment over 90 days.

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

Constellation Software  vs.  Rheinmetall AG

Constellation Software

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Constellation Software are ranked lower than 3 (%) 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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Rheinmetall AG

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rheinmetall AG are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak primary indicators, Rheinmetall exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Constellation Software and Rheinmetall

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

The idea behind Constellation Software and Rheinmetall AG 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.

Check out your portfolio center.

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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.