Correlation Between Alliance Recovery and Compass Diversified

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

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

Diversification Opportunities for Alliance Recovery and Compass Diversified

0.29

Correlation Coefficient

Alliance Recovery  Compass Diversified

Modest diversification

The 3 months correlation between Alliance and Compass is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Recovery and Compass Diversified Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass Diversified and Alliance Recovery 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 Alliance Recovery 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 Alliance Recovery i.e., Alliance Recovery and Compass Diversified go up and down completely randomly.

Pair Corralation between Alliance Recovery and Compass Diversified

Given the investment horizon of 90 days Alliance Recovery is expected to generate 1.87 times more return on investment than Compass Diversified. However, Alliance Recovery is 1.87 times more volatile than Compass Diversified Holdings. It trades about 0.03 of its potential returns per unit of risk. Compass Diversified Holdings is currently generating about 0.04 per unit of risk. If you would invest  0.25  in Alliance Recovery on September 1, 2024 and sell it today you would earn a total of  0.01  from holding Alliance Recovery or generate 4.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.21%
Values	Daily Returns

Alliance Recovery  vs.  Compass Diversified Holdings

Alliance Recovery

Risk-Adjusted Performance

0 of 100

Very Weak

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

Compass Diversified

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Compass Diversified Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal fundamental indicators, Compass Diversified may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Alliance Recovery and Compass Diversified

The main advantage of trading using opposite Alliance Recovery and Compass Diversified positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alliance Recovery 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 Alliance Recovery 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.