Correlation Between Constellation Software and ELECTRONIC ARTS
Can any of the company-specific risk be diversified away by investing in both Constellation Software and ELECTRONIC ARTS 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 ELECTRONIC ARTS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Constellation Software and ELECTRONIC ARTS, you can compare the effects of market volatilities on Constellation Software and ELECTRONIC ARTS 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 ELECTRONIC ARTS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Constellation Software and ELECTRONIC ARTS.
Diversification Opportunities for Constellation Software and ELECTRONIC ARTS
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Constellation and ELECTRONIC is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Software and ELECTRONIC ARTS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ELECTRONIC ARTS 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 ELECTRONIC ARTS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ELECTRONIC ARTS has no effect on the direction of Constellation Software i.e., Constellation Software and ELECTRONIC ARTS go up and down completely randomly.
Pair Corralation between Constellation Software and ELECTRONIC ARTS
Assuming the 90 days trading horizon Constellation Software is expected to generate 1.16 times more return on investment than ELECTRONIC ARTS. However, Constellation Software is 1.16 times more volatile than ELECTRONIC ARTS. It trades about 0.09 of its potential returns per unit of risk. ELECTRONIC ARTS is currently generating about -0.2 per unit of risk. If you would invest 299,500 in Constellation Software on September 20, 2024 and sell it today you would earn a total of 9,000 from holding Constellation Software or generate 3.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Constellation Software vs. ELECTRONIC ARTS
Performance |
| Timeline |
| Constellation Software |
| ELECTRONIC ARTS |
Constellation Software and ELECTRONIC ARTS Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Constellation Software and ELECTRONIC ARTS
The main advantage of trading using opposite Constellation Software and ELECTRONIC ARTS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Constellation Software position performs unexpectedly, ELECTRONIC ARTS 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 ELECTRONIC ARTS will offset losses from the drop in ELECTRONIC ARTS's long position.| Constellation Software vs. Apple Inc | Constellation Software vs. Apple Inc | Constellation Software vs. Apple Inc | Constellation Software vs. Apple Inc |
| ELECTRONIC ARTS vs. Apple Inc | ELECTRONIC ARTS vs. Apple Inc | ELECTRONIC ARTS vs. Apple Inc | ELECTRONIC ARTS vs. Microsoft |
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 Anywhere module to track or share privately all of your investments from the convenience of any device.
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