Correlation Between Constellation Software and Datadog

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

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

Diversification Opportunities for Constellation Software and Datadog

0.38

Correlation Coefficient

Constellation Software  Datadog

Weak diversification

The 3 months correlation between Constellation and Datadog is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Software and Datadog in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Datadog and Constellation Software 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 Software are associated (or correlated) with Datadog. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Datadog has no effect on the direction of Constellation Software i.e., Constellation Software and Datadog go up and down completely randomly.

Pair Corralation between Constellation Software and Datadog

Assuming the 90 days trading horizon Constellation Software is expected to generate 14.51 times less return on investment than Datadog. But when comparing it to its historical volatility, Constellation Software is 2.91 times less risky than Datadog. It trades about 0.04 of its potential returns per unit of risk. Datadog is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  7,923  in Datadog on April 16, 2025 and sell it today you would earn a total of  3,771  from holding Datadog or generate 47.6% return on investment over 90 days.

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

Constellation Software  vs.  Datadog

Constellation Software

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Constellation Software are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, Constellation Software is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Datadog

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Datadog are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Datadog reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Constellation Software and Datadog

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

The idea behind Constellation Software and Datadog 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.