Correlation Between Dow Jones and Compass Group
Can any of the company-specific risk be diversified away by investing in both Dow Jones 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 Dow Jones and Compass Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and Compass Group PLC, you can compare the effects of market volatilities on Dow Jones 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 Dow Jones with a short position of Compass Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Compass Group.
Diversification Opportunities for Dow Jones and Compass Group
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and Compass is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial 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 Dow Jones 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 Dow Jones Industrial 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 Dow Jones i.e., Dow Jones and Compass Group go up and down completely randomly.
Pair Corralation between Dow Jones and Compass Group
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.17 times less return on investment than Compass Group. In addition to that, Dow Jones is 1.21 times more volatile than Compass Group PLC. It trades about 0.27 of its total potential returns per unit of risk. Compass Group PLC is currently generating about 0.39 per unit of volatility. If you would invest 253,000 in Compass Group PLC on August 30, 2024 and sell it today you would earn a total of 17,600 from holding Compass Group PLC or generate 6.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Compass Group PLC
Performance |
| Timeline |
Dow Jones and Compass Group Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Compass Group PLC
Pair trading matchups for Compass Group
Pair Trading with Dow Jones and Compass Group
The main advantage of trading using opposite Dow Jones and Compass Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones 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.| Dow Jones vs. Kaltura | Dow Jones vs. Artisan Partners Asset | Dow Jones vs. US Global Investors | Dow Jones vs. Analog Devices |
| Compass Group vs. Fresenius Medical Care | Compass Group vs. Albion Technology General | Compass Group vs. DXC Technology Co | Compass Group vs. Monster Beverage Corp |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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