Correlation Between Compass Group and InterContinental
Can any of the company-specific risk be diversified away by investing in both Compass Group and InterContinental 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 InterContinental 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 InterContinental Hotels Group, you can compare the effects of market volatilities on Compass Group and InterContinental 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 InterContinental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compass Group and InterContinental.
Diversification Opportunities for Compass Group and InterContinental
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Compass and InterContinental is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Compass Group PLC and InterContinental Hotels Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on InterContinental Hotels 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 InterContinental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of InterContinental Hotels has no effect on the direction of Compass Group i.e., Compass Group and InterContinental go up and down completely randomly.
Pair Corralation between Compass Group and InterContinental
Assuming the 90 days trading horizon Compass Group is expected to generate 1.27 times less return on investment than InterContinental. But when comparing it to its historical volatility, Compass Group PLC is 1.2 times less risky than InterContinental. It trades about 0.12 of its potential returns per unit of risk. InterContinental Hotels Group is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 693,208 in InterContinental Hotels Group on September 12, 2024 and sell it today you would earn a total of 282,592 from holding InterContinental Hotels Group or generate 40.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Compass Group PLC vs. InterContinental Hotels Group
Performance |
| Timeline |
| Compass Group PLC |
| InterContinental Hotels |
Compass Group and InterContinental Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Compass Group and InterContinental
The main advantage of trading using opposite Compass Group and InterContinental positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Compass Group position performs unexpectedly, InterContinental 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 InterContinental will offset losses from the drop in InterContinental's long position.| Compass Group vs. Auction Technology Group | Compass Group vs. Take Two Interactive Software | Compass Group vs. Cognizant Technology Solutions | Compass Group vs. Litigation Capital Management |
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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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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