Correlation Between Compass Group and Gear4music Plc

Can any of the company-specific risk be diversified away by investing in both Compass Group and Gear4music 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 Gear4music 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 Gear4music Plc, you can compare the effects of market volatilities on Compass Group and Gear4music 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 Gear4music Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compass Group and Gear4music Plc.

Diversification Opportunities for Compass Group and Gear4music Plc

-0.31

Correlation Coefficient

Compass Group  Gear4music Plc

Very good diversification

The 3 months correlation between Compass and Gear4music is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Compass Group PLC and Gear4music Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gear4music 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 Gear4music Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gear4music Plc has no effect on the direction of Compass Group i.e., Compass Group and Gear4music Plc go up and down completely randomly.

Pair Corralation between Compass Group and Gear4music Plc

Assuming the 90 days trading horizon Compass Group is expected to generate 1.66 times less return on investment than Gear4music Plc. But when comparing it to its historical volatility, Compass Group PLC is 3.24 times less risky than Gear4music Plc. It trades about 0.08 of its potential returns per unit of risk. Gear4music Plc is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  9,700  in Gear4music Plc on October 22, 2024 and sell it today you would earn a total of  5,050  from holding Gear4music Plc or generate 52.06% return on investment over 90 days.

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

Compass Group PLC  vs.  Gear4music Plc

Compass Group PLC

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Compass Group PLC are ranked lower than 13 (%) 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.

Gear4music Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gear4music Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Compass Group and Gear4music Plc

The main advantage of trading using opposite Compass Group and Gear4music Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Compass Group position performs unexpectedly, Gear4music 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 Gear4music Plc will offset losses from the drop in Gear4music Plc's long position.

The idea behind Compass Group PLC and Gear4music 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.