Correlation Between Compass Diversified and Ardagh

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

Diversification Opportunities for Compass Diversified and Ardagh

0.39

Correlation Coefficient

Compass Diversified  Ardagh

Weak diversification

The 3 months correlation between Compass and Ardagh is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Compass Diversified Holdings and Ardagh Packaging Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ardagh Packaging Finance 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 Ardagh. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ardagh Packaging Finance has no effect on the direction of Compass Diversified i.e., Compass Diversified and Ardagh go up and down completely randomly.

Pair Corralation between Compass Diversified and Ardagh

Assuming the 90 days trading horizon Compass Diversified is expected to generate 8.69 times less return on investment than Ardagh. But when comparing it to its historical volatility, Compass Diversified Holdings is 21.04 times less risky than Ardagh. It trades about 0.25 of its potential returns per unit of risk. Ardagh Packaging Finance is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  5,626  in Ardagh Packaging Finance on October 10, 2024 and sell it today you would earn a total of  174.00  from holding Ardagh Packaging Finance or generate 3.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	42.86%
Values	Daily Returns

Compass Diversified Holdings  vs.  Ardagh Packaging Finance

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.

Ardagh Packaging Finance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ardagh Packaging Finance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for Ardagh Packaging Finance investors.

Pair Trading with Compass Diversified and Ardagh

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

The idea behind Compass Diversified Holdings and Ardagh Packaging Finance 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.