Correlation Between Berkshire Hathaway and Compass Group

Can any of the company-specific risk be diversified away by investing in both Berkshire Hathaway 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 Berkshire Hathaway and Compass Group into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Berkshire Hathaway and Compass Group PLC, you can compare the effects of market volatilities on Berkshire Hathaway 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 Berkshire Hathaway with a short position of Compass Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Berkshire Hathaway and Compass Group.

Diversification Opportunities for Berkshire Hathaway and Compass Group

0.57

Correlation Coefficient

Berkshire Hathaway  Compass Group

Very weak diversification

The 3 months correlation between Berkshire and Compass is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Berkshire Hathaway 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 Berkshire Hathaway 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 Berkshire Hathaway 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 Berkshire Hathaway i.e., Berkshire Hathaway and Compass Group go up and down completely randomly.

Pair Corralation between Berkshire Hathaway and Compass Group

Assuming the 90 days trading horizon Berkshire Hathaway is expected to under-perform the Compass Group. But the stock apears to be less risky and, when comparing its historical volatility, Berkshire Hathaway is 1.01 times less risky than Compass Group. The stock trades about -0.01 of its potential returns per unit of risk. The Compass Group PLC is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  242,100  in Compass Group PLC on September 19, 2024 and sell it today you would earn a total of  25,100  from holding Compass Group PLC or generate 10.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Berkshire Hathaway  vs.  Compass Group PLC

Berkshire Hathaway

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Berkshire Hathaway has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Berkshire Hathaway is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Compass Group PLC

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Compass Group PLC are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Compass Group may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Berkshire Hathaway and Compass Group

The main advantage of trading using opposite Berkshire Hathaway and Compass Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Berkshire Hathaway 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 Berkshire Hathaway 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.

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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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.