Correlation Between Leons Furniture and Constellation Software

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

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

Diversification Opportunities for Leons Furniture and Constellation Software

-0.43

Correlation Coefficient

Leons Furniture  Constellation Software

Very good diversification

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

Pair Corralation between Leons Furniture and Constellation Software

Assuming the 90 days trading horizon Leons Furniture Limited is expected to under-perform the Constellation Software. In addition to that, Leons Furniture is 1.15 times more volatile than Constellation Software. It trades about -0.07 of its total potential returns per unit of risk. Constellation Software is currently generating about 0.14 per unit of volatility. If you would invest  425,643  in Constellation Software on September 1, 2024 and sell it today you would earn a total of  47,773  from holding Constellation Software or generate 11.22% return on investment over 90 days.

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

Leons Furniture Limited  vs.  Constellation Software

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 weak 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.

Constellation Software

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Constellation Software are ranked lower than 11 (%) 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 December 2024.

Pair Trading with Leons Furniture and Constellation Software

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

The idea behind Leons Furniture Limited and Constellation Software 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.