Correlation Between Cisco Systems and Compass Group
Can any of the company-specific risk be diversified away by investing in both Cisco Systems 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 Cisco Systems and Compass Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cisco Systems and Compass Group PLC, you can compare the effects of market volatilities on Cisco Systems 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 Cisco Systems with a short position of Compass Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cisco Systems and Compass Group.
Diversification Opportunities for Cisco Systems and Compass Group
0.56 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Cisco and Compass is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Cisco Systems 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 Cisco Systems 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 Cisco Systems 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 Cisco Systems i.e., Cisco Systems and Compass Group go up and down completely randomly.
Pair Corralation between Cisco Systems and Compass Group
Given the investment horizon of 90 days Cisco Systems is expected to generate 1.09 times less return on investment than Compass Group. But when comparing it to its historical volatility, Cisco Systems is 1.2 times less risky than Compass Group. It trades about 0.08 of its potential returns per unit of risk. Compass Group PLC is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 2,795 in Compass Group PLC on August 28, 2024 and sell it today you would earn a total of 538.00 from holding Compass Group PLC or generate 19.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 90.91% |
| Values | Daily Returns |
Cisco Systems vs. Compass Group PLC
Performance |
| Timeline |
| Cisco Systems |
| Compass Group PLC |
Cisco Systems and Compass Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cisco Systems and Compass Group
The main advantage of trading using opposite Cisco Systems and Compass Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cisco Systems 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.| Cisco Systems vs. Ichor Holdings | Cisco Systems vs. Fabrinet | Cisco Systems vs. Hello Group | Cisco Systems vs. Ultra Clean Holdings |
| Compass Group vs. The Cheesecake Factory | Compass Group vs. Darden Restaurants | Compass Group vs. Wingstop | Compass Group vs. Dominos Pizza |
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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
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