In this paper, the existence of both compressive stress and charge transfer process in hydrothermally synthesized cobalt ferrite-graphene oxide (CoFe2O4/GO) nanocomposites has been established. Transmission electron microscopy results reveal the decoration of CoFe2O4 nanoparticles on GO sheets. Magnetic response of nanocomposites was confirmed from superconducting quantum interference device magnetometer measurement. Optical properties of these nanocomposites were investigated by Raman spectroscopy. The interfacial compressive stress involved in this system has been evaluated from observed blue shift of characteristic G peak of graphene oxide. Increase in the full-width half-maximum value as well as upshift in D and G peaks is clear indications of involvement of charge transfer process between GO sheets and dispersed magnetic nanoparticles. The effect of charge transfer process is quantified in terms of shifting of Fermi energy level of these nanocomposites. This is evaluated from variation in contact surface potential difference using scanning Kelvin probe microscopy. XRD spectra of CoFe2O4/GO confirm the polycrystalline nature of CoFe2O4 nanoparticles. Lattice strain estimated from XRD peaks is correlated with the observed Raman shift.