Correlation Between Constellation Software and X FAB

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

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

Diversification Opportunities for Constellation Software and X FAB

-0.18

Correlation Coefficient

Constellation Software  X FAB

Good diversification

The 3 months correlation between Constellation and XFB is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Software and X FAB Silicon Foundries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on X FAB Silicon 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 X FAB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of X FAB Silicon has no effect on the direction of Constellation Software i.e., Constellation Software and X FAB go up and down completely randomly.

Pair Corralation between Constellation Software and X FAB

Assuming the 90 days trading horizon Constellation Software is expected to generate 0.49 times more return on investment than X FAB. However, Constellation Software is 2.06 times less risky than X FAB. It trades about -0.01 of its potential returns per unit of risk. X FAB Silicon Foundries is currently generating about -0.02 per unit of risk. If you would invest  289,903  in Constellation Software on October 10, 2024 and sell it today you would lose (4,403) from holding Constellation Software or give up 1.52% of portfolio value over 90 days.

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

Constellation Software  vs.  X FAB Silicon Foundries

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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

X FAB Silicon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days X FAB Silicon Foundries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, X FAB is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Constellation Software and X FAB

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

The idea behind Constellation Software and X FAB Silicon Foundries 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 Transaction History module to view history of all your transactions and understand their impact on performance.