Correlation Between Compass Group and Marstons PLC

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

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

Diversification Opportunities for Compass Group and Marstons PLC

0.45

Correlation Coefficient

Compass Group  Marstons PLC

Very weak diversification

The 3 months correlation between Compass and Marstons is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Compass Group PLC and Marstons PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Marstons PLC and Compass Group 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 Compass Group PLC are associated (or correlated) with Marstons PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Marstons PLC has no effect on the direction of Compass Group i.e., Compass Group and Marstons PLC go up and down completely randomly.

Pair Corralation between Compass Group and Marstons PLC

Assuming the 90 days horizon Compass Group PLC is expected to generate 0.59 times more return on investment than Marstons PLC. However, Compass Group PLC is 1.69 times less risky than Marstons PLC. It trades about 0.01 of its potential returns per unit of risk. Marstons PLC is currently generating about -0.1 per unit of risk. 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	Weak
Accuracy	95.38%
Values	Daily Returns

Compass Group PLC  vs.  Marstons PLC

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.

Marstons PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Marstons PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Compass Group and Marstons PLC

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

The idea behind Compass Group PLC and Marstons 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.