Correlation Between Compass Group and Papa Johns

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

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

Diversification Opportunities for Compass Group and Papa Johns

-0.01

Correlation Coefficient

Compass Group  Papa Johns

Good diversification

The 3 months correlation between Compass and Papa is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Compass Group PLC and Papa Johns International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Papa Johns International and Compass Group 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 Compass Group PLC are associated (or correlated) with Papa Johns. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Papa Johns International has no effect on the direction of Compass Group i.e., Compass Group and Papa Johns go up and down completely randomly.

Pair Corralation between Compass Group and Papa Johns

Assuming the 90 days horizon Compass Group PLC is expected to generate 0.42 times more return on investment than Papa Johns. However, Compass Group PLC is 2.36 times less risky than Papa Johns. It trades about 0.07 of its potential returns per unit of risk. Papa Johns International is currently generating about -0.19 per unit of risk. If you would invest  3,417  in Compass Group PLC on September 12, 2024 and sell it today you would earn a total of  49.00  from holding Compass Group PLC or generate 1.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Compass Group PLC  vs.  Papa Johns International

Compass Group PLC

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Compass Group PLC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, Compass Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Papa Johns International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Papa Johns International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Papa Johns is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Compass Group and Papa Johns

The main advantage of trading using opposite Compass Group and Papa Johns positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Compass Group position performs unexpectedly, Papa Johns 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 Papa Johns will offset losses from the drop in Papa Johns' long position.

The idea behind Compass Group PLC and Papa Johns International 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.