Correlation Between CompoSecure and Northwest Pipe

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

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

Diversification Opportunities for CompoSecure and Northwest Pipe

0.69

Correlation Coefficient

CompoSecure  Northwest Pipe

Poor diversification

The 3 months correlation between CompoSecure and Northwest is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding CompoSecure and Northwest Pipe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northwest Pipe and CompoSecure 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 CompoSecure are associated (or correlated) with Northwest Pipe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northwest Pipe has no effect on the direction of CompoSecure i.e., CompoSecure and Northwest Pipe go up and down completely randomly.

Pair Corralation between CompoSecure and Northwest Pipe

Assuming the 90 days horizon CompoSecure is expected to generate 39.87 times more return on investment than Northwest Pipe. However, CompoSecure is 39.87 times more volatile than Northwest Pipe. It trades about 0.09 of its potential returns per unit of risk. Northwest Pipe is currently generating about 0.06 per unit of risk. If you would invest  72.00  in CompoSecure on September 5, 2024 and sell it today you would earn a total of  437.00  from holding CompoSecure or generate 606.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	89.09%
Values	Daily Returns

CompoSecure  vs.  Northwest Pipe

CompoSecure

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CompoSecure are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, CompoSecure showed solid returns over the last few months and may actually be approaching a breakup point.

Northwest Pipe

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Northwest Pipe are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Northwest Pipe showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CompoSecure and Northwest Pipe

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

The idea behind CompoSecure and Northwest Pipe 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.