Correlation Between Constellation Software and Emerge Commerce

Can any of the company-specific risk be diversified away by investing in both Constellation Software and Emerge Commerce 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 Emerge Commerce into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Constellation Software and Emerge Commerce, you can compare the effects of market volatilities on Constellation Software and Emerge Commerce 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 Emerge Commerce. Check out your portfolio center. Please also check ongoing floating volatility patterns of Constellation Software and Emerge Commerce.

Diversification Opportunities for Constellation Software and Emerge Commerce

-0.06

Correlation Coefficient

Constellation Software  Emerge Commerce

Good diversification

The 3 months correlation between Constellation and Emerge is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Software and Emerge Commerce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerge Commerce 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 Emerge Commerce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerge Commerce has no effect on the direction of Constellation Software i.e., Constellation Software and Emerge Commerce go up and down completely randomly.

Pair Corralation between Constellation Software and Emerge Commerce

Assuming the 90 days trading horizon Constellation Software is expected to generate 4.1 times less return on investment than Emerge Commerce. But when comparing it to its historical volatility, Constellation Software is 6.15 times less risky than Emerge Commerce. It trades about 0.09 of its potential returns per unit of risk. Emerge Commerce is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  4.50  in Emerge Commerce on September 15, 2024 and sell it today you would earn a total of  0.50  from holding Emerge Commerce or generate 11.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Constellation Software  vs.  Emerge Commerce

Constellation Software

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Constellation Software are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Constellation Software may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Emerge Commerce

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Emerge Commerce are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Emerge Commerce showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Constellation Software and Emerge Commerce

The main advantage of trading using opposite Constellation Software and Emerge Commerce positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Constellation Software position performs unexpectedly, Emerge Commerce 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 Emerge Commerce will offset losses from the drop in Emerge Commerce's long position.

The idea behind Constellation Software and Emerge Commerce 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.