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 Carsales 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

0.87

Correlation Coefficient

Carsales  COMPASS GROUP

Very poor diversification

The 3 months correlation between Carsales and COMPASS is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Carsales 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 Carsales 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 trading horizon Carsales is expected to generate 1.09 times less return on investment than COMPASS GROUP. In addition to that, Carsales is 1.12 times more volatile than COMPASS GROUP. It trades about 0.14 of its total potential returns per unit of risk. COMPASS GROUP is currently generating about 0.17 per unit of volatility. If you would invest  2,700  in COMPASS GROUP on September 2, 2024 and sell it today you would earn a total of  400.00  from holding COMPASS GROUP or generate 14.81% return on investment over 90 days.

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

Carsales  vs.  COMPASS GROUP

Carsales

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Carsales are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Carsales may actually be approaching a critical reversion point that can send shares even higher in January 2025.

COMPASS GROUP

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in COMPASS GROUP are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, COMPASS GROUP reported solid returns over the last few months and may actually be approaching a breakup point.

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 Carsales 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.