Correlation Between Constellation Software and Leons Furniture

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

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

Diversification Opportunities for Constellation Software and Leons Furniture

-0.43

Correlation Coefficient

Constellation Software  Leons Furniture

Very good diversification

The 3 months correlation between Constellation and Leons is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Software and Leons Furniture Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leons Furniture 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 Leons Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leons Furniture has no effect on the direction of Constellation Software i.e., Constellation Software and Leons Furniture go up and down completely randomly.

Pair Corralation between Constellation Software and Leons Furniture

Assuming the 90 days trading horizon Constellation Software is expected to generate 0.64 times more return on investment than Leons Furniture. However, Constellation Software is 1.56 times less risky than Leons Furniture. It trades about 0.13 of its potential returns per unit of risk. Leons Furniture Limited is currently generating about 0.06 per unit of risk. If you would invest  208,468  in Constellation Software on September 3, 2024 and sell it today you would earn a total of  264,948  from holding Constellation Software or generate 127.09% 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.  Leons Furniture Limited

Constellation Software

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Constellation Software are ranked lower than 12 (%) 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.

Leons Furniture

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Leons Furniture Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Constellation Software and Leons Furniture

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

The idea behind Constellation Software and Leons Furniture Limited 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.