Correlation Between Brown Forman and Constellation Brands
Can any of the company-specific risk be diversified away by investing in both Brown Forman 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 Brown Forman and Constellation Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Brown Forman and Constellation Brands Class, you can compare the effects of market volatilities on Brown Forman 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 Brown Forman with a short position of Constellation Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brown Forman and Constellation Brands.
Diversification Opportunities for Brown Forman and Constellation Brands
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Brown and Constellation is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Brown Forman and Constellation Brands Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Constellation Brands and Brown Forman 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 Brown Forman 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 Brown Forman i.e., Brown Forman and Constellation Brands go up and down completely randomly.
Pair Corralation between Brown Forman and Constellation Brands
Given the investment horizon of 90 days Brown Forman is expected to generate 0.41 times more return on investment than Constellation Brands. However, Brown Forman is 2.43 times less risky than Constellation Brands. It trades about -0.54 of its potential returns per unit of risk. Constellation Brands Class is currently generating about -0.24 per unit of risk. If you would invest 4,063 in Brown Forman on October 20, 2024 and sell it today you would lose (664.00) from holding Brown Forman or give up 16.34% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Brown Forman vs. Constellation Brands Class
Performance |
| Timeline |
| Brown Forman |
| Constellation Brands |
Brown Forman and Constellation Brands Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Brown Forman and Constellation Brands
The main advantage of trading using opposite Brown Forman and Constellation Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brown Forman 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.| Brown Forman vs. MGP Ingredients | Brown Forman vs. Diageo PLC ADR | Brown Forman vs. Constellation Brands Class | Brown Forman vs. Pernod Ricard SA |
| Constellation Brands vs. Brown Forman | Constellation Brands vs. MGP Ingredients | Constellation Brands vs. Brown Forman | Constellation Brands vs. Diageo PLC ADR |
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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.
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