Correlation Between Compass Diversified and GENERAL

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

Diversification Opportunities for Compass Diversified and GENERAL

0.01

Correlation Coefficient

Compass Diversified  GENERAL

Significant diversification

The 3 months correlation between Compass and GENERAL is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Compass Diversified Holdings and GENERAL ELEC CAP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GENERAL ELEC CAP 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 GENERAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GENERAL ELEC CAP has no effect on the direction of Compass Diversified i.e., Compass Diversified and GENERAL go up and down completely randomly.

Pair Corralation between Compass Diversified and GENERAL

Assuming the 90 days trading horizon Compass Diversified Holdings is expected to generate 1.36 times more return on investment than GENERAL. However, Compass Diversified is 1.36 times more volatile than GENERAL ELEC CAP. It trades about 0.38 of its potential returns per unit of risk. GENERAL ELEC CAP is currently generating about 0.34 per unit of risk. If you would invest  2,268  in Compass Diversified Holdings on October 26, 2024 and sell it today you would earn a total of  172.00  from holding Compass Diversified Holdings or generate 7.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	55.56%
Values	Daily Returns

Compass Diversified Holdings  vs.  GENERAL ELEC CAP

Compass Diversified

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Compass Diversified Holdings are ranked lower than 1 (%) 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 latest stock price disturbance, may contribute to short-term losses for the investors.

GENERAL ELEC CAP

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in GENERAL ELEC CAP are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, GENERAL is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Compass Diversified and GENERAL

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

The idea behind Compass Diversified Holdings and GENERAL ELEC CAP 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.

Check out your portfolio center.

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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.