Correlation Between Compass Group and Hargreaves Lansdown

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

Diversification Opportunities for Compass Group and Hargreaves Lansdown

0.87

Correlation Coefficient

Compass Group  Hargreaves Lansdown

Very poor diversification

The 3 months correlation between Compass and Hargreaves is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Compass Group PLC and Hargreaves Lansdown plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hargreaves Lansdown 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 Hargreaves Lansdown. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hargreaves Lansdown plc has no effect on the direction of Compass Group i.e., Compass Group and Hargreaves Lansdown go up and down completely randomly.

Pair Corralation between Compass Group and Hargreaves Lansdown

Assuming the 90 days trading horizon Compass Group PLC is expected to generate 0.56 times more return on investment than Hargreaves Lansdown. However, Compass Group PLC is 1.79 times less risky than Hargreaves Lansdown. It trades about 0.08 of its potential returns per unit of risk. Hargreaves Lansdown plc is currently generating about 0.04 per unit of risk. If you would invest  187,607  in Compass Group PLC on September 26, 2024 and sell it today you would earn a total of  76,893  from holding Compass Group PLC or generate 40.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.79%
Values	Daily Returns

Compass Group PLC  vs.  Hargreaves Lansdown plc

Compass Group PLC

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Compass Group PLC are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Compass Group may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Hargreaves Lansdown plc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hargreaves Lansdown plc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Hargreaves Lansdown is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Compass Group and Hargreaves Lansdown

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

The idea behind Compass Group PLC and Hargreaves Lansdown 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.