Correlation Between Compass Diversified and Dmc Global

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

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

Diversification Opportunities for Compass Diversified and Dmc Global

0.71

Correlation Coefficient

Compass Diversified  Dmc Global

Poor diversification

The 3 months correlation between Compass and Dmc is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Compass Diversified and Dmc Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dmc Global 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 are associated (or correlated) with Dmc Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dmc Global has no effect on the direction of Compass Diversified i.e., Compass Diversified and Dmc Global go up and down completely randomly.

Pair Corralation between Compass Diversified and Dmc Global

Assuming the 90 days trading horizon Compass Diversified is expected to generate 0.27 times more return on investment than Dmc Global. However, Compass Diversified is 3.7 times less risky than Dmc Global. It trades about -0.08 of its potential returns per unit of risk. Dmc Global is currently generating about -0.12 per unit of risk. If you would invest  2,301  in Compass Diversified on September 23, 2024 and sell it today you would lose (29.00) from holding Compass Diversified or give up 1.26% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Compass Diversified  vs.  Dmc Global

Compass Diversified

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Compass Diversified 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.

Dmc Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dmc Global has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Compass Diversified and Dmc Global

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

The idea behind Compass Diversified and Dmc Global 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.