Correlation Between AGF Management and COMPASS GROUP

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

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

Diversification Opportunities for AGF Management and COMPASS GROUP

0.62

Correlation Coefficient

AGF Management  COMPASS GROUP

Poor diversification

The 3 months correlation between AGF and COMPASS is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding AGF Management Limited and COMPASS GROUP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COMPASS GROUP and AGF Management 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 AGF Management Limited are associated (or correlated) with COMPASS GROUP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COMPASS GROUP has no effect on the direction of AGF Management i.e., AGF Management and COMPASS GROUP go up and down completely randomly.

Pair Corralation between AGF Management and COMPASS GROUP

Assuming the 90 days horizon AGF Management is expected to generate 1.18 times less return on investment than COMPASS GROUP. In addition to that, AGF Management is 2.34 times more volatile than COMPASS GROUP. It trades about 0.08 of its total potential returns per unit of risk. COMPASS GROUP is currently generating about 0.22 per unit of volatility. If you would invest  3,080  in COMPASS GROUP on November 28, 2024 and sell it today you would earn a total of  140.00  from holding COMPASS GROUP or generate 4.55% return on investment over 90 days.

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

AGF Management Limited  vs.  COMPASS GROUP

AGF Management

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AGF Management Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, AGF Management is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

COMPASS GROUP

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in COMPASS GROUP are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, COMPASS GROUP is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with AGF Management and COMPASS GROUP

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

The idea behind AGF Management Limited and COMPASS GROUP 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.