Correlation Between Compass Group and JD Sports

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

Diversification Opportunities for Compass Group and JD Sports

0.07

Correlation Coefficient

Compass Group  JD Sports

Significant diversification

The 3 months correlation between Compass and JD Sports is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Compass Group PLC and JD Sports Fashion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JD Sports Fashion 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 JD Sports. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JD Sports Fashion has no effect on the direction of Compass Group i.e., Compass Group and JD Sports go up and down completely randomly.

Pair Corralation between Compass Group and JD Sports

Assuming the 90 days trading horizon Compass Group PLC is expected to generate 0.51 times more return on investment than JD Sports. However, Compass Group PLC is 1.95 times less risky than JD Sports. It trades about -0.1 of its potential returns per unit of risk. JD Sports Fashion is currently generating about -0.14 per unit of risk. If you would invest  265,500  in Compass Group PLC on December 25, 2024 and sell it today you would lose (21,900) from holding Compass Group PLC or give up 8.25% of portfolio value over 90 days.

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

Compass Group PLC  vs.  JD Sports Fashion

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 latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

JD Sports Fashion

Risk-Adjusted Performance

Very Weak

Over the last 90 days JD Sports Fashion 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 basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Compass Group and JD Sports

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

The idea behind Compass Group PLC and JD Sports Fashion 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.