Correlation Between Carsales and COMPASS GROUP

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

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

Diversification Opportunities for Carsales and COMPASS GROUP

0.45

Correlation Coefficient

Carsales  COMPASS GROUP

Very weak diversification

The 3 months correlation between Carsales and COMPASS is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding CarsalesCom and COMPASS GROUP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COMPASS GROUP and Carsales 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 CarsalesCom 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 has no effect on the direction of Carsales i.e., Carsales and COMPASS GROUP go up and down completely randomly.

Pair Corralation between Carsales and COMPASS GROUP

Assuming the 90 days horizon CarsalesCom is expected to generate 1.61 times more return on investment than COMPASS GROUP. However, Carsales is 1.61 times more volatile than COMPASS GROUP. It trades about 0.13 of its potential returns per unit of risk. COMPASS GROUP is currently generating about 0.08 per unit of risk. If you would invest  2,220  in CarsalesCom on October 23, 2024 and sell it today you would earn a total of  80.00  from holding CarsalesCom or generate 3.6% return on investment over 90 days.

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

CarsalesCom  vs.  COMPASS GROUP

CarsalesCom

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CarsalesCom are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Carsales is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

COMPASS GROUP

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in COMPASS GROUP are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, COMPASS GROUP may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Carsales and COMPASS GROUP

The main advantage of trading using opposite Carsales and COMPASS GROUP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Carsales 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 CarsalesCom and COMPASS GROUP 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.