Correlation Between Wendys and Compass Group

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

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

Diversification Opportunities for Wendys and Compass Group

0.2

Correlation Coefficient

Wendys  Compass Group

Modest diversification

The 3 months correlation between Wendys and Compass is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding The Wendys Co 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 Wendys 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 The Wendys Co 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 Wendys i.e., Wendys and Compass Group go up and down completely randomly.

Pair Corralation between Wendys and Compass Group

Considering the 90-day investment horizon The Wendys Co is expected to under-perform the Compass Group. In addition to that, Wendys is 1.66 times more volatile than Compass Group PLC. It trades about 0.0 of its total potential returns per unit of risk. Compass Group PLC is currently generating about 0.12 per unit of volatility. If you would invest  2,857  in Compass Group PLC on September 13, 2024 and sell it today you would earn a total of  574.00  from holding Compass Group PLC or generate 20.09% return on investment over 90 days.

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

The Wendys Co  vs.  Compass Group PLC

The Wendys

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days The Wendys Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Wendys is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Compass Group PLC

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Compass Group PLC are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Compass Group may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Wendys and Compass Group

The main advantage of trading using opposite Wendys and Compass Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wendys 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 The Wendys Co 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.