Correlation Between Compass Group and Software Circle
Can any of the company-specific risk be diversified away by investing in both Compass Group and Software Circle 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 Software Circle 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 Software Circle plc, you can compare the effects of market volatilities on Compass Group and Software Circle 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 Software Circle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compass Group and Software Circle.
Diversification Opportunities for Compass Group and Software Circle
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Compass and Software is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Compass Group PLC and Software Circle plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Software Circle 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 Software Circle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Software Circle plc has no effect on the direction of Compass Group i.e., Compass Group and Software Circle go up and down completely randomly.
Pair Corralation between Compass Group and Software Circle
Assuming the 90 days trading horizon Compass Group is expected to generate 2.57 times less return on investment than Software Circle. But when comparing it to its historical volatility, Compass Group PLC is 2.22 times less risky than Software Circle. It trades about 0.09 of its potential returns per unit of risk. Software Circle plc is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 860.00 in Software Circle plc on November 4, 2024 and sell it today you would earn a total of 1,590 from holding Software Circle plc or generate 184.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
Compass Group PLC vs. Software Circle plc
Performance |
| Timeline |
| Compass Group PLC |
| Software Circle plc |
Compass Group and Software Circle Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Compass Group and Software Circle
The main advantage of trading using opposite Compass Group and Software Circle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Compass Group position performs unexpectedly, Software Circle 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 Software Circle will offset losses from the drop in Software Circle's long position.| Compass Group vs. Samsung Electronics Co | Compass Group vs. International Biotechnology Trust | Compass Group vs. Norwegian Air Shuttle | Compass Group vs. Heavitree Brewery |
| Software Circle vs. Indutrade AB | Software Circle vs. Litigation Capital Management | Software Circle vs. Vietnam Enterprise Investments | Software Circle vs. Lowland Investment Co |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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