Correlation Between Compass Diversified and Global Lights

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

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

Diversification Opportunities for Compass Diversified and Global Lights

0.58

Correlation Coefficient

Compass Diversified  Global Lights

Very weak diversification

The 3 months correlation between Compass and Global is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Compass Diversified Holdings and Global Lights Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Lights Acquisition and Compass Diversified 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 Compass Diversified Holdings are associated (or correlated) with Global Lights. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Lights Acquisition has no effect on the direction of Compass Diversified i.e., Compass Diversified and Global Lights go up and down completely randomly.

Pair Corralation between Compass Diversified and Global Lights

Assuming the 90 days trading horizon Compass Diversified is expected to generate 510743.0 times less return on investment than Global Lights. But when comparing it to its historical volatility, Compass Diversified Holdings is 197.7 times less risky than Global Lights. It trades about 0.0 of its potential returns per unit of risk. Global Lights Acquisition is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  18.00  in Global Lights Acquisition on October 11, 2024 and sell it today you would lose (2.99) from holding Global Lights Acquisition or give up 16.61% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	21.91%
Values	Daily Returns

Compass Diversified Holdings  vs.  Global Lights Acquisition

Compass Diversified

Risk-Adjusted Performance

0 of 100

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.

Global Lights Acquisition

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Global Lights Acquisition has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively uncertain fundamental indicators, Global Lights reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Compass Diversified and Global Lights

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

The idea behind Compass Diversified Holdings and Global Lights Acquisition 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.