Correlation Between Fortune Brands and Compass Group
Can any of the company-specific risk be diversified away by investing in both Fortune Brands 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 Fortune Brands and Compass Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fortune Brands Home and Compass Group PLC, you can compare the effects of market volatilities on Fortune Brands 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 Fortune Brands with a short position of Compass Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fortune Brands and Compass Group.
Diversification Opportunities for Fortune Brands and Compass Group
-0.52 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Fortune and Compass is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Fortune Brands Home 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 Fortune Brands 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 Fortune Brands Home 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 Fortune Brands i.e., Fortune Brands and Compass Group go up and down completely randomly.
Pair Corralation between Fortune Brands and Compass Group
Assuming the 90 days trading horizon Fortune Brands is expected to generate 1.15 times less return on investment than Compass Group. In addition to that, Fortune Brands is 2.04 times more volatile than Compass Group PLC. It trades about 0.05 of its total potential returns per unit of risk. Compass Group PLC is currently generating about 0.11 per unit of volatility. If you would invest 200,908 in Compass Group PLC on September 14, 2024 and sell it today you would earn a total of 66,392 from holding Compass Group PLC or generate 33.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 85.98% |
| Values | Daily Returns |
Fortune Brands Home vs. Compass Group PLC
Performance |
| Timeline |
| Fortune Brands Home |
| Compass Group PLC |
Fortune Brands and Compass Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fortune Brands and Compass Group
The main advantage of trading using opposite Fortune Brands and Compass Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fortune Brands 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.| Fortune Brands vs. STMicroelectronics NV | Fortune Brands vs. Aeorema Communications Plc | Fortune Brands vs. Charter Communications Cl | Fortune Brands vs. Air Products Chemicals |
| Compass Group vs. GoldMining | Compass Group vs. Fortune Brands Home | Compass Group vs. Hochschild Mining plc | Compass Group vs. Young Cos Brewery |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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