Correlation Between Constellation Brands and Seadrill

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

Diversification Opportunities for Constellation Brands and Seadrill

0.89

Correlation Coefficient

Constellation Brands  Seadrill

Very poor diversification

The 3 months correlation between Constellation and Seadrill is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Brands Class and Seadrill Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seadrill Limited 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 Seadrill. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Seadrill Limited has no effect on the direction of Constellation Brands i.e., Constellation Brands and Seadrill go up and down completely randomly.

Pair Corralation between Constellation Brands and Seadrill

Considering the 90-day investment horizon Constellation Brands is expected to generate 2.87 times less return on investment than Seadrill. But when comparing it to its historical volatility, Constellation Brands Class is 1.82 times less risky than Seadrill. It trades about 0.04 of its potential returns per unit of risk. Seadrill Limited is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3,962  in Seadrill Limited on January 20, 2024 and sell it today you would earn a total of  930.00  from holding Seadrill Limited or generate 23.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.52%
Values	Daily Returns

Constellation Brands Class  vs.  Seadrill Limited

Constellation Brands

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Constellation Brands Class are ranked lower than 4 (%) 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.

Seadrill Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Seadrill Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating basic indicators, Seadrill may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Constellation Brands and Seadrill

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

The idea behind Constellation Brands Class and Seadrill 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.

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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..