Correlation Between Analog Devices and Compass Diversified

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

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

Diversification Opportunities for Analog Devices and Compass Diversified

-0.03

Correlation Coefficient

Analog Devices  Compass Diversified

Good diversification

The 3 months correlation between Analog and Compass is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Analog Devices and Compass Diversified Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass Diversified and Analog Devices 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 Analog Devices are associated (or correlated) with Compass Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compass Diversified has no effect on the direction of Analog Devices i.e., Analog Devices and Compass Diversified go up and down completely randomly.

Pair Corralation between Analog Devices and Compass Diversified

Considering the 90-day investment horizon Analog Devices is expected to generate 2.07 times more return on investment than Compass Diversified. However, Analog Devices is 2.07 times more volatile than Compass Diversified Holdings. It trades about -0.01 of its potential returns per unit of risk. Compass Diversified Holdings is currently generating about -0.03 per unit of risk. If you would invest  21,086  in Analog Devices on December 20, 2024 and sell it today you would lose (496.00) from holding Analog Devices or give up 2.35% of portfolio value over 90 days.

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

Analog Devices  vs.  Compass Diversified Holdings

Analog Devices

Risk-Adjusted Performance

Very Weak

Over the last 90 days Analog Devices has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Analog Devices is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Compass Diversified

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Analog Devices and Compass Diversified

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

The idea behind Analog Devices and Compass Diversified Holdings 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.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.