Correlation Between Constellation Brands and Nations VolDex

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Can any of the company-specific risk be diversified away by investing in both Constellation Brands and Nations VolDex 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 Brands and Nations VolDex into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Constellation Brands Class and Nations VolDex, you can compare the effects of market volatilities on Constellation Brands and Nations VolDex 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 Brands with a short position of Nations VolDex. Check out your portfolio center. Please also check ongoing floating volatility patterns of Constellation Brands and Nations VolDex.

Diversification Opportunities for Constellation Brands and Nations VolDex

-0.07
  Correlation Coefficient

Good diversification

The 3 months correlation between Constellation and Nations is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Brands Class and Nations VolDex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nations VolDex and Constellation Brands 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 Brands Class are associated (or correlated) with Nations VolDex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nations VolDex has no effect on the direction of Constellation Brands i.e., Constellation Brands and Nations VolDex go up and down completely randomly.
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Pair Corralation between Constellation Brands and Nations VolDex

Considering the 90-day investment horizon Constellation Brands Class is expected to under-perform the Nations VolDex. But the stock apears to be less risky and, when comparing its historical volatility, Constellation Brands Class is 6.48 times less risky than Nations VolDex. The stock trades about -0.04 of its potential returns per unit of risk. The Nations VolDex is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,068  in Nations VolDex on September 14, 2024 and sell it today you would lose (31.00) from holding Nations VolDex or give up 2.9% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy97.66%
ValuesDaily Returns

Constellation Brands Class  vs.  Nations VolDex

 Performance 
       Timeline  

Constellation Brands and Nations VolDex Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Constellation Brands and Nations VolDex

The main advantage of trading using opposite Constellation Brands and Nations VolDex positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Constellation Brands position performs unexpectedly, Nations VolDex 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 Nations VolDex will offset losses from the drop in Nations VolDex's long position.
The idea behind Constellation Brands Class and Nations VolDex 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.

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