Correlation Between Sodexo PK and Global Payments

Can any of the company-specific risk be diversified away by investing in both Sodexo PK and Global Payments 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 Sodexo PK and Global Payments into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sodexo PK and Global Payments, you can compare the effects of market volatilities on Sodexo PK and Global Payments 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 Sodexo PK with a short position of Global Payments. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sodexo PK and Global Payments.

Diversification Opportunities for Sodexo PK and Global Payments

0.64

Correlation Coefficient

Sodexo PK  Global Payments

Poor diversification

The 3 months correlation between Sodexo and Global is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Sodexo PK and Global Payments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Payments and Sodexo PK 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 Sodexo PK are associated (or correlated) with Global Payments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Payments has no effect on the direction of Sodexo PK i.e., Sodexo PK and Global Payments go up and down completely randomly.

Pair Corralation between Sodexo PK and Global Payments

Assuming the 90 days horizon Sodexo PK is expected to generate 1.05 times more return on investment than Global Payments. However, Sodexo PK is 1.05 times more volatile than Global Payments. It trades about -0.06 of its potential returns per unit of risk. Global Payments is currently generating about -0.12 per unit of risk. If you would invest  1,623  in Sodexo PK on December 2, 2024 and sell it today you would lose (92.00) from holding Sodexo PK or give up 5.67% of portfolio value over 90 days.

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

Sodexo PK  vs.  Global Payments

Sodexo PK

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sodexo PK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Sodexo PK is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Global Payments

Risk-Adjusted Performance

Very Weak

Over the last 90 days Global Payments has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Sodexo PK and Global Payments

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

The idea behind Sodexo PK and Global Payments 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.

Check out your portfolio center.

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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.