Correlation Between Coloplast and Compass Group

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

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

Diversification Opportunities for Coloplast and Compass Group

0.38

Correlation Coefficient

Coloplast  Compass Group

Weak diversification

The 3 months correlation between Coloplast and Compass is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Coloplast A and Compass Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass Group PLC and Coloplast 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 Coloplast A 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 PLC has no effect on the direction of Coloplast i.e., Coloplast and Compass Group go up and down completely randomly.

Pair Corralation between Coloplast and Compass Group

Assuming the 90 days horizon Coloplast A is expected to under-perform the Compass Group. But the pink sheet apears to be less risky and, when comparing its historical volatility, Coloplast A is 1.14 times less risky than Compass Group. The pink sheet trades about -0.04 of its potential returns per unit of risk. The Compass Group PLC is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3,334  in Compass Group PLC on December 30, 2024 and sell it today you would earn a total of  0.00  from holding Compass Group PLC or generate 0.0% return on investment over 90 days.

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

Coloplast A  vs.  Compass Group PLC

Coloplast A

Risk-Adjusted Performance

Very Weak

Over the last 90 days Coloplast A has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental drivers, Coloplast is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Compass Group PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Compass Group PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Compass Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Coloplast and Compass Group

The main advantage of trading using opposite Coloplast and Compass Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coloplast 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 Coloplast A and Compass Group PLC 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.