Correlation Between Compass Group and Aston Martin

Can any of the company-specific risk be diversified away by investing in both Compass Group and Aston Martin 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 Aston Martin 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 Aston Martin Lagonda, you can compare the effects of market volatilities on Compass Group and Aston Martin 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 Aston Martin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compass Group and Aston Martin.

Diversification Opportunities for Compass Group and Aston Martin

-0.54

Correlation Coefficient

Compass Group  Aston Martin

Excellent diversification

The 3 months correlation between Compass and Aston is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Compass Group PLC and Aston Martin Lagonda in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aston Martin Lagonda 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 Aston Martin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aston Martin Lagonda has no effect on the direction of Compass Group i.e., Compass Group and Aston Martin go up and down completely randomly.

Pair Corralation between Compass Group and Aston Martin

Assuming the 90 days trading horizon Compass Group PLC is expected to generate 0.19 times more return on investment than Aston Martin. However, Compass Group PLC is 5.17 times less risky than Aston Martin. It trades about 0.23 of its potential returns per unit of risk. Aston Martin Lagonda is currently generating about -0.12 per unit of risk. If you would invest  239,900  in Compass Group PLC on August 30, 2024 and sell it today you would earn a total of  30,700  from holding Compass Group PLC or generate 12.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Compass Group PLC  vs.  Aston Martin Lagonda

Compass Group PLC

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Compass Group PLC are ranked lower than 18 (%) 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 December 2024.

Aston Martin Lagonda

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aston Martin Lagonda has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Compass Group and Aston Martin

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

The idea behind Compass Group PLC and Aston Martin Lagonda 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.