Correlation Between Compass Group and Standard Chartered

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

Diversification Opportunities for Compass Group and Standard Chartered

0.67

Correlation Coefficient

Compass Group  Standard Chartered

Poor diversification

The 3 months correlation between Compass and Standard is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Compass Group PLC and Standard Chartered PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Standard Chartered 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 Standard Chartered. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Standard Chartered PLC has no effect on the direction of Compass Group i.e., Compass Group and Standard Chartered go up and down completely randomly.

Pair Corralation between Compass Group and Standard Chartered

Assuming the 90 days trading horizon Compass Group is expected to generate 1.69 times less return on investment than Standard Chartered. But when comparing it to its historical volatility, Compass Group PLC is 1.8 times less risky than Standard Chartered. It trades about 0.09 of its potential returns per unit of risk. Standard Chartered PLC is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  66,856  in Standard Chartered PLC on December 3, 2024 and sell it today you would earn a total of  60,044  from holding Standard Chartered PLC or generate 89.81% return on investment over 90 days.

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

Compass Group PLC  vs.  Standard Chartered PLC

Compass Group PLC

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Compass Group PLC are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Compass Group is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Standard Chartered PLC

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Standard Chartered PLC are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Standard Chartered unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Compass Group and Standard Chartered

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

The idea behind Compass Group PLC and Standard Chartered 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..