Correlation Between Compass Group and EasyJet PLC

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

Diversification Opportunities for Compass Group and EasyJet PLC

0.85

Correlation Coefficient

Compass Group  EasyJet PLC

Very poor diversification

The 3 months correlation between Compass and EasyJet is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Compass Group PLC and EasyJet PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EasyJet 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 EasyJet PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EasyJet PLC has no effect on the direction of Compass Group i.e., Compass Group and EasyJet PLC go up and down completely randomly.

Pair Corralation between Compass Group and EasyJet PLC

Assuming the 90 days trading horizon Compass Group PLC is expected to generate 0.47 times more return on investment than EasyJet PLC. However, Compass Group PLC is 2.14 times less risky than EasyJet PLC. It trades about 0.08 of its potential returns per unit of risk. EasyJet PLC is currently generating about 0.03 per unit of risk. If you would invest  183,766  in Compass Group PLC on October 5, 2024 and sell it today you would earn a total of  84,834  from holding Compass Group PLC or generate 46.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.8%
Values	Daily Returns

Compass Group PLC  vs.  EasyJet PLC

Compass Group PLC

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Compass Group PLC are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Compass Group may actually be approaching a critical reversion point that can send shares even higher in February 2025.

EasyJet PLC

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in EasyJet PLC are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, EasyJet PLC exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Compass Group and EasyJet PLC

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

The idea behind Compass Group PLC and EasyJet 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.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.