Correlation Between Compass Diversified and Equity Residential

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

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

Diversification Opportunities for Compass Diversified and Equity Residential

-0.02

Correlation Coefficient

Compass Diversified  Equity Residential

Good diversification

The 3 months correlation between Compass and Equity is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Compass Diversified and Equity Residential in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Residential 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 Equity Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Residential has no effect on the direction of Compass Diversified i.e., Compass Diversified and Equity Residential go up and down completely randomly.

Pair Corralation between Compass Diversified and Equity Residential

Assuming the 90 days trading horizon Compass Diversified is expected to generate 0.5 times more return on investment than Equity Residential. However, Compass Diversified is 1.99 times less risky than Equity Residential. It trades about 0.05 of its potential returns per unit of risk. Equity Residential is currently generating about -0.05 per unit of risk. If you would invest  2,359  in Compass Diversified on October 8, 2024 and sell it today you would earn a total of  55.00  from holding Compass Diversified or generate 2.33% return on investment over 90 days.

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

Compass Diversified  vs.  Equity Residential

Compass Diversified

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Compass Diversified are ranked lower than 4 (%) 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.

Equity Residential

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Equity Residential has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Equity Residential is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Compass Diversified and Equity Residential

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

The idea behind Compass Diversified and Equity Residential 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.