Correlation Between Carsales and Constellation Brands
Can any of the company-specific risk be diversified away by investing in both Carsales and Constellation Brands 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 Carsales and Constellation Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CarsalesCom and Constellation Brands, you can compare the effects of market volatilities on Carsales and Constellation Brands 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 Carsales with a short position of Constellation Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carsales and Constellation Brands.
Diversification Opportunities for Carsales and Constellation Brands
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Carsales and Constellation is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding CarsalesCom and Constellation Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Constellation Brands and Carsales 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 CarsalesCom are associated (or correlated) with Constellation Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Constellation Brands has no effect on the direction of Carsales i.e., Carsales and Constellation Brands go up and down completely randomly.
Pair Corralation between Carsales and Constellation Brands
Assuming the 90 days horizon CarsalesCom is expected to under-perform the Constellation Brands. In addition to that, Carsales is 1.01 times more volatile than Constellation Brands. It trades about -0.74 of its total potential returns per unit of risk. Constellation Brands is currently generating about -0.21 per unit of volatility. If you would invest 22,560 in Constellation Brands on October 5, 2024 and sell it today you would lose (920.00) from holding Constellation Brands or give up 4.08% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
CarsalesCom vs. Constellation Brands
Performance |
Timeline |
CarsalesCom |
Constellation Brands |
Carsales and Constellation Brands Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Carsales and Constellation Brands
The main advantage of trading using opposite Carsales and Constellation Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Carsales position performs unexpectedly, Constellation Brands 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 Constellation Brands will offset losses from the drop in Constellation Brands' long position.Carsales vs. Caseys General Stores | Carsales vs. BJs Wholesale Club | Carsales vs. Shenandoah Telecommunications | Carsales vs. Ross Stores |
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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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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