Correlation Between Constellation Software and Labrador Iron

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

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

Diversification Opportunities for Constellation Software and Labrador Iron

-0.45

Correlation Coefficient

Constellation Software  Labrador Iron

Very good diversification

The 3 months correlation between Constellation and Labrador is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Software and Labrador Iron Ore in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Labrador Iron Ore 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 Labrador Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Labrador Iron Ore has no effect on the direction of Constellation Software i.e., Constellation Software and Labrador Iron go up and down completely randomly.

Pair Corralation between Constellation Software and Labrador Iron

Assuming the 90 days trading horizon Constellation Software is expected to generate 1.06 times more return on investment than Labrador Iron. However, Constellation Software is 1.06 times more volatile than Labrador Iron Ore. It trades about 0.09 of its potential returns per unit of risk. Labrador Iron Ore is currently generating about 0.01 per unit of risk. If you would invest  435,407  in Constellation Software on September 15, 2024 and sell it today you would earn a total of  30,536  from holding Constellation Software or generate 7.01% return on investment over 90 days.

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

Constellation Software  vs.  Labrador Iron Ore

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 abnormal basic indicators, Constellation Software may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Labrador Iron Ore

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Labrador Iron Ore has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Labrador Iron is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Constellation Software and Labrador Iron

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

The idea behind Constellation Software and Labrador Iron Ore 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.