Correlation Between Compass Group and BP Plc
Can any of the company-specific risk be diversified away by investing in both Compass Group and BP Plc 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 Compass Group and BP Plc into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Compass Group PLC and BP plc, you can compare the effects of market volatilities on Compass Group and BP Plc 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 Compass Group with a short position of BP Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compass Group and BP Plc.
Diversification Opportunities for Compass Group and BP Plc
-0.76 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Compass and BP-A is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Compass Group PLC and BP plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP plc and Compass Group 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 Compass Group PLC are associated (or correlated) with BP Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BP plc has no effect on the direction of Compass Group i.e., Compass Group and BP Plc go up and down completely randomly.
Pair Corralation between Compass Group and BP Plc
Assuming the 90 days trading horizon Compass Group PLC is expected to generate 1.17 times more return on investment than BP Plc. However, Compass Group is 1.17 times more volatile than BP plc. It trades about 0.14 of its potential returns per unit of risk. BP plc is currently generating about -0.36 per unit of risk. If you would invest 260,927 in Compass Group PLC on October 21, 2024 and sell it today you would earn a total of 6,573 from holding Compass Group PLC or generate 2.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Compass Group PLC vs. BP plc
Performance |
| Timeline |
| Compass Group PLC |
| BP plc |
Compass Group and BP Plc Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Compass Group and BP Plc
The main advantage of trading using opposite Compass Group and BP Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Compass Group position performs unexpectedly, BP Plc 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 BP Plc will offset losses from the drop in BP Plc's long position.| Compass Group vs. MoneysupermarketCom Group PLC | Compass Group vs. Seraphim Space Investment | Compass Group vs. Beeks Trading | Compass Group vs. Supermarket Income REIT |
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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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