Correlation Between Compass Diversified and RMG Acquisition

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

Diversification Opportunities for Compass Diversified and RMG Acquisition

0.0

Correlation Coefficient

Compass Diversified  RMG Acquisition

Pay attention - limited upside

The 3 months correlation between Compass and RMG is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Compass Diversified Holdings and RMG Acquisition Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RMG Acquisition Corp 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 RMG Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RMG Acquisition Corp has no effect on the direction of Compass Diversified i.e., Compass Diversified and RMG Acquisition go up and down completely randomly.

Pair Corralation between Compass Diversified and RMG Acquisition

Assuming the 90 days trading horizon Compass Diversified Holdings is expected to generate 0.96 times more return on investment than RMG Acquisition. However, Compass Diversified Holdings is 1.04 times less risky than RMG Acquisition. It trades about 0.0 of its potential returns per unit of risk. RMG Acquisition Corp is currently generating about -0.01 per unit of risk. If you would invest  2,472  in Compass Diversified Holdings on October 10, 2024 and sell it today you would lose (58.00) from holding Compass Diversified Holdings or give up 2.35% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	72.82%
Values	Daily Returns

Compass Diversified Holdings  vs.  RMG Acquisition Corp

Compass Diversified

Risk-Adjusted Performance

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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.

RMG Acquisition Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RMG Acquisition Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, RMG Acquisition 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 RMG Acquisition

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

The idea behind Compass Diversified Holdings and RMG Acquisition Corp 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.