Correlation Between IGM Financial and Constellation Software
Can any of the company-specific risk be diversified away by investing in both IGM Financial and Constellation Software 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 IGM Financial and Constellation Software into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between IGM Financial and Constellation Software, you can compare the effects of market volatilities on IGM Financial and Constellation Software 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 IGM Financial with a short position of Constellation Software. Check out your portfolio center. Please also check ongoing floating volatility patterns of IGM Financial and Constellation Software.
Diversification Opportunities for IGM Financial and Constellation Software
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between IGM and Constellation is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding IGM Financial and Constellation Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Constellation Software and IGM Financial 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 IGM Financial are associated (or correlated) with Constellation Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Constellation Software has no effect on the direction of IGM Financial i.e., IGM Financial and Constellation Software go up and down completely randomly.
Pair Corralation between IGM Financial and Constellation Software
Assuming the 90 days trading horizon IGM Financial is expected to generate 1.06 times less return on investment than Constellation Software. But when comparing it to its historical volatility, IGM Financial is 1.31 times less risky than Constellation Software. It trades about 0.12 of its potential returns per unit of risk. Constellation Software is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 329,076 in Constellation Software on September 20, 2024 and sell it today you would earn a total of 117,636 from holding Constellation Software or generate 35.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
IGM Financial vs. Constellation Software
Performance |
| Timeline |
| IGM Financial |
| Constellation Software |
IGM Financial and Constellation Software Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IGM Financial and Constellation Software
The main advantage of trading using opposite IGM Financial and Constellation Software positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IGM Financial position performs unexpectedly, Constellation Software 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 Software will offset losses from the drop in Constellation Software's long position.| IGM Financial vs. Berkshire Hathaway CDR | IGM Financial vs. E L Financial Corp | IGM Financial vs. E L Financial 3 | IGM Financial vs. Molson Coors Canada |
| Constellation Software vs. Kinaxis | Constellation Software vs. Open Text Corp | Constellation Software vs. Enghouse Systems | Constellation Software vs. CGI Inc |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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