Correlation Between Constellation Software and RWE AG

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

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

Diversification Opportunities for Constellation Software and RWE AG

0.0

Correlation Coefficient

Constellation Software  RWE AG

Pay attention - limited upside

The 3 months correlation between Constellation and RWE is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Software and RWE AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RWE 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 RWE AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RWE AG has no effect on the direction of Constellation Software i.e., Constellation Software and RWE AG go up and down completely randomly.

Pair Corralation between Constellation Software and RWE AG

Assuming the 90 days trading horizon Constellation Software is expected to under-perform the RWE AG. In addition to that, Constellation Software is 1.27 times more volatile than RWE AG. It trades about -0.21 of its total potential returns per unit of risk. RWE AG is currently generating about -0.24 per unit of volatility. If you would invest  3,074  in RWE AG on October 11, 2024 and sell it today you would lose (210.00) from holding RWE AG or give up 6.83% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Constellation Software  vs.  RWE AG

Constellation Software

Risk-Adjusted Performance

0 of 100

Very Weak

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.

RWE AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RWE AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Constellation Software and RWE AG

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

The idea behind Constellation Software and RWE 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.

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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..