Correlation Between Compass Group and Wendys

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

Diversification Opportunities for Compass Group and Wendys

0.12

Correlation Coefficient

Compass Group  Wendys

Average diversification

The 3 months correlation between Compass and Wendys is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Compass Group PLC and The Wendys Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Wendys 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 Wendys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Wendys has no effect on the direction of Compass Group i.e., Compass Group and Wendys go up and down completely randomly.

Pair Corralation between Compass Group and Wendys

Assuming the 90 days horizon Compass Group PLC is expected to generate 0.57 times more return on investment than Wendys. However, Compass Group PLC is 1.75 times less risky than Wendys. It trades about 0.04 of its potential returns per unit of risk. The Wendys Co is currently generating about 0.0 per unit of risk. If you would invest  3,344  in Compass Group PLC on September 14, 2024 and sell it today you would earn a total of  87.00  from holding Compass Group PLC or generate 2.6% return on investment over 90 days.

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

Compass Group PLC  vs.  The Wendys Co

Compass Group PLC

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Compass Group PLC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

The Wendys

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Wendys Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Wendys is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Compass Group and Wendys

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

The idea behind Compass Group PLC and The Wendys Co 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.