Correlation Between Papa Johns and Compass Group

Can any of the company-specific risk be diversified away by investing in both Papa Johns and Compass Group 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 Papa Johns and Compass Group into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Papa Johns International and Compass Group PLC, you can compare the effects of market volatilities on Papa Johns and Compass Group 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 Papa Johns with a short position of Compass Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Papa Johns and Compass Group.

Diversification Opportunities for Papa Johns and Compass Group

0.56

Correlation Coefficient

Papa Johns  Compass Group

Very weak diversification

The 3 months correlation between Papa and Compass is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Papa Johns International and Compass Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass Group PLC and Papa Johns 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 Papa Johns International are associated (or correlated) with Compass Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compass Group PLC has no effect on the direction of Papa Johns i.e., Papa Johns and Compass Group go up and down completely randomly.

Pair Corralation between Papa Johns and Compass Group

Given the investment horizon of 90 days Papa Johns International is expected to generate 2.7 times more return on investment than Compass Group. However, Papa Johns is 2.7 times more volatile than Compass Group PLC. It trades about 0.02 of its potential returns per unit of risk. Compass Group PLC is currently generating about -0.06 per unit of risk. If you would invest  4,021  in Papa Johns International on December 26, 2024 and sell it today you would earn a total of  37.00  from holding Papa Johns International or generate 0.92% return on investment over 90 days.

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

Papa Johns International  vs.  Compass Group PLC

Papa Johns International

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Papa Johns International are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Papa Johns is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

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 fairly strong technical and fundamental indicators, Compass Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Papa Johns and Compass Group

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

The idea behind Papa Johns International and Compass Group 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 Transaction History module to view history of all your transactions and understand their impact on performance.