Correlation Between Constellation Brands and Nippon Steel

Can any of the company-specific risk be diversified away by investing in both Constellation Brands and Nippon Steel 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 Nippon Steel 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 Nippon Steel Corp, you can compare the effects of market volatilities on Constellation Brands and Nippon Steel 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 Nippon Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Constellation Brands and Nippon Steel.

Diversification Opportunities for Constellation Brands and Nippon Steel

0.0

Correlation Coefficient

Constellation Brands  Nippon Steel

Pay attention - limited upside

The 3 months correlation between Constellation and Nippon is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Brands Class and Nippon Steel Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Steel Corp 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 Nippon Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nippon Steel Corp has no effect on the direction of Constellation Brands i.e., Constellation Brands and Nippon Steel go up and down completely randomly.

Pair Corralation between Constellation Brands and Nippon Steel

Considering the 90-day investment horizon Constellation Brands Class is expected to generate 0.76 times more return on investment than Nippon Steel. However, Constellation Brands Class is 1.32 times less risky than Nippon Steel. It trades about -0.21 of its potential returns per unit of risk. Nippon Steel Corp is currently generating about -0.37 per unit of risk. If you would invest  27,176  in Constellation Brands Class on January 28, 2024 and sell it today you would lose (1,172) from holding Constellation Brands Class or give up 4.31% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Constellation Brands Class  vs.  Nippon Steel Corp

Constellation Brands

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Constellation Brands Class are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Constellation Brands is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Nippon Steel Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nippon Steel Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Constellation Brands and Nippon Steel

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

The idea behind Constellation Brands Class and Nippon Steel Corp 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.