Correlation Between Restaurant Brands and Compass Group
Can any of the company-specific risk be diversified away by investing in both Restaurant Brands 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 Restaurant Brands and Compass Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Restaurant Brands International and Compass Group PLC, you can compare the effects of market volatilities on Restaurant Brands 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 Restaurant Brands with a short position of Compass Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Restaurant Brands and Compass Group.
Diversification Opportunities for Restaurant Brands and Compass Group
-0.35 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Restaurant and Compass is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Restaurant Brands Internationa 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 Restaurant Brands 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 Restaurant Brands International 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 Restaurant Brands i.e., Restaurant Brands and Compass Group go up and down completely randomly.
Pair Corralation between Restaurant Brands and Compass Group
Considering the 90-day investment horizon Restaurant Brands is expected to generate 3.4 times less return on investment than Compass Group. But when comparing it to its historical volatility, Restaurant Brands International is 1.4 times less risky than Compass Group. It trades about 0.03 of its potential returns per unit of risk. Compass Group PLC is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 2,197 in Compass Group PLC on August 28, 2024 and sell it today you would earn a total of 1,136 from holding Compass Group PLC or generate 51.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 89.09% |
| Values | Daily Returns |
Restaurant Brands Internationa vs. Compass Group PLC
Performance |
| Timeline |
| Restaurant Brands |
| Compass Group PLC |
Restaurant Brands and Compass Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Restaurant Brands and Compass Group
The main advantage of trading using opposite Restaurant Brands and Compass Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Restaurant Brands 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.| Restaurant Brands vs. Yum Brands | Restaurant Brands vs. Papa Johns International | Restaurant Brands vs. Jack In The | Restaurant Brands vs. Dominos Pizza |
| 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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