Correlation Between Solstad Offshore and Constellation Brands

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

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

Diversification Opportunities for Solstad Offshore and Constellation Brands

0.28

Correlation Coefficient

Solstad Offshore  Constellation Brands

Modest diversification

The 3 months correlation between Solstad and Constellation is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Solstad Offshore ASA and Constellation Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Constellation Brands and Solstad Offshore 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 Solstad Offshore ASA are associated (or correlated) with Constellation Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Constellation Brands has no effect on the direction of Solstad Offshore i.e., Solstad Offshore and Constellation Brands go up and down completely randomly.

Pair Corralation between Solstad Offshore and Constellation Brands

Assuming the 90 days trading horizon Solstad Offshore ASA is expected to generate 2.96 times more return on investment than Constellation Brands. However, Solstad Offshore is 2.96 times more volatile than Constellation Brands. It trades about 0.1 of its potential returns per unit of risk. Constellation Brands is currently generating about -0.08 per unit of risk. If you would invest  270.00  in Solstad Offshore ASA on September 30, 2024 and sell it today you would earn a total of  62.00  from holding Solstad Offshore ASA or generate 22.96% return on investment over 90 days.

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

Solstad Offshore ASA  vs.  Constellation Brands

Solstad Offshore ASA

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Solstad Offshore ASA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Solstad Offshore unveiled solid returns over the last few months and may actually be approaching a breakup point.

Constellation Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Constellation Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Constellation Brands is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Solstad Offshore and Constellation Brands

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

The idea behind Solstad Offshore ASA and Constellation Brands 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.