Correlation Between Constellation Brands and Talen Energy

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

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

Diversification Opportunities for Constellation Brands and Talen Energy

-0.29

Correlation Coefficient

Constellation Brands  Talen Energy

Very good diversification

The 3 months correlation between Constellation and Talen is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Brands Class and Talen Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Talen Energy and Constellation Brands 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 Brands Class are associated (or correlated) with Talen Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Talen Energy has no effect on the direction of Constellation Brands i.e., Constellation Brands and Talen Energy go up and down completely randomly.

Pair Corralation between Constellation Brands and Talen Energy

Considering the 90-day investment horizon Constellation Brands is expected to generate 20.12 times less return on investment than Talen Energy. But when comparing it to its historical volatility, Constellation Brands Class is 2.03 times less risky than Talen Energy. It trades about 0.02 of its potential returns per unit of risk. Talen Energy is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  4,650  in Talen Energy on September 28, 2024 and sell it today you would earn a total of  15,989  from holding Talen Energy or generate 343.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	79.64%
Values	Daily Returns

Constellation Brands Class  vs.  Talen Energy

Constellation Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Constellation Brands Class has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Talen Energy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Talen Energy are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak essential indicators, Talen Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Constellation Brands and Talen Energy

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

The idea behind Constellation Brands Class and Talen Energy 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.

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 Global Correlations module to find global opportunities by holding instruments from different markets.