Correlation Between Constellation Software and United Airlines

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

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

Diversification Opportunities for Constellation Software and United Airlines

0.77

Correlation Coefficient

Constellation Software  United Airlines

Poor diversification

The 3 months correlation between Constellation and United is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Software and United Airlines Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Airlines Holdings 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 United Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Airlines Holdings has no effect on the direction of Constellation Software i.e., Constellation Software and United Airlines go up and down completely randomly.

Pair Corralation between Constellation Software and United Airlines

Assuming the 90 days trading horizon Constellation Software is expected to generate 17.97 times less return on investment than United Airlines. But when comparing it to its historical volatility, Constellation Software is 2.33 times less risky than United Airlines. It trades about 0.05 of its potential returns per unit of risk. United Airlines Holdings is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest  4,703  in United Airlines Holdings on September 23, 2024 and sell it today you would earn a total of  4,620  from holding United Airlines Holdings or generate 98.24% return on investment over 90 days.

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

Constellation Software  vs.  United Airlines Holdings

Constellation Software

Risk-Adjusted Performance

3 of 100

Insignificant

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.

United Airlines Holdings

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in United Airlines Holdings are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, United Airlines reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Constellation Software and United Airlines

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

The idea behind Constellation Software and United Airlines Holdings 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.