Correlation Between Beijing Enterprises and Compass Diversified

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

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

Diversification Opportunities for Beijing Enterprises and Compass Diversified

-0.12

Correlation Coefficient

Beijing Enterprises  Compass Diversified

Good diversification

The 3 months correlation between Beijing and Compass is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Enterprises Holdings and Compass Diversified Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass Diversified and Beijing Enterprises 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 Beijing Enterprises Holdings 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 Beijing Enterprises i.e., Beijing Enterprises and Compass Diversified go up and down completely randomly.

Pair Corralation between Beijing Enterprises and Compass Diversified

Assuming the 90 days horizon Beijing Enterprises is expected to generate 5.29 times less return on investment than Compass Diversified. But when comparing it to its historical volatility, Beijing Enterprises Holdings is 1.56 times less risky than Compass Diversified. It trades about 0.03 of its potential returns per unit of risk. Compass Diversified Holdings is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,139  in Compass Diversified Holdings on September 21, 2024 and sell it today you would earn a total of  162.00  from holding Compass Diversified Holdings or generate 7.57% return on investment over 90 days.

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

Beijing Enterprises Holdings  vs.  Compass Diversified Holdings

Beijing Enterprises

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Beijing Enterprises Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Beijing Enterprises is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Compass Diversified

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Compass Diversified Holdings are ranked lower than 5 (%) 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 January 2025.

Pair Trading with Beijing Enterprises and Compass Diversified

The main advantage of trading using opposite Beijing Enterprises and Compass Diversified positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Beijing Enterprises 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 Beijing Enterprises Holdings 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.

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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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.