Correlation Between GM and Compass Group
Can any of the company-specific risk be diversified away by investing in both GM 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 GM and Compass Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Compass Group PLC, you can compare the effects of market volatilities on GM 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 GM with a short position of Compass Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Compass Group.
Diversification Opportunities for GM and Compass Group
0.25 | Correlation Coefficient |
Modest diversification
The 3 months correlation between GM and Compass is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding General Motors 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 GM 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 General Motors 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 GM i.e., GM and Compass Group go up and down completely randomly.
Pair Corralation between GM and Compass Group
Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Compass Group. In addition to that, GM is 2.04 times more volatile than Compass Group PLC. It trades about -0.02 of its total potential returns per unit of risk. Compass Group PLC is currently generating about 0.08 per unit of volatility. If you would invest 3,168 in Compass Group PLC on October 25, 2024 and sell it today you would earn a total of 42.00 from holding Compass Group PLC or generate 1.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 89.47% |
| Values | Daily Returns |
General Motors vs. Compass Group PLC
Performance |
| Timeline |
| General Motors |
| Compass Group PLC |
GM and Compass Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Compass Group
The main advantage of trading using opposite GM and Compass Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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.The idea behind General Motors and Compass Group PLC pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Compass Group vs. CSSC Offshore Marine | Compass Group vs. FORWARD AIR P | Compass Group vs. Eidesvik Offshore ASA | Compass Group vs. Transport International Holdings |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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