Correlation Between Compass Diversified and Micron Technology

Can any of the company-specific risk be diversified away by investing in both Compass Diversified and Micron Technology 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 Micron Technology 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 Micron Technology, you can compare the effects of market volatilities on Compass Diversified and Micron Technology 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 Micron Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compass Diversified and Micron Technology.

Diversification Opportunities for Compass Diversified and Micron Technology

0.5

Correlation Coefficient

Compass Diversified  Micron Technology

Very weak diversification

The 3 months correlation between Compass and Micron is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Compass Diversified Holdings and Micron Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micron Technology 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 Micron Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Micron Technology has no effect on the direction of Compass Diversified i.e., Compass Diversified and Micron Technology go up and down completely randomly.

Pair Corralation between Compass Diversified and Micron Technology

Assuming the 90 days trading horizon Compass Diversified is expected to generate 3.22 times less return on investment than Micron Technology. But when comparing it to its historical volatility, Compass Diversified Holdings is 4.43 times less risky than Micron Technology. It trades about 0.03 of its potential returns per unit of risk. Micron Technology is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  10,777  in Micron Technology on October 25, 2024 and sell it today you would earn a total of  146.00  from holding Micron Technology or generate 1.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

Compass Diversified Holdings  vs.  Micron Technology

Compass Diversified

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Compass Diversified Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Micron Technology

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Micron Technology are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Micron Technology is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Compass Diversified and Micron Technology

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

The idea behind Compass Diversified Holdings and Micron Technology 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.