Correlation Between Compass Diversified and Valmont Industries

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

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

Diversification Opportunities for Compass Diversified and Valmont Industries

0.29

Correlation Coefficient

Compass Diversified  Valmont Industries

Modest diversification

The 3 months correlation between Compass and Valmont is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Compass Diversified and Valmont Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valmont Industries 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 Valmont Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valmont Industries has no effect on the direction of Compass Diversified i.e., Compass Diversified and Valmont Industries go up and down completely randomly.

Pair Corralation between Compass Diversified and Valmont Industries

Assuming the 90 days trading horizon Compass Diversified is expected to generate 0.34 times more return on investment than Valmont Industries. However, Compass Diversified is 2.93 times less risky than Valmont Industries. It trades about -0.02 of its potential returns per unit of risk. Valmont Industries is currently generating about -0.01 per unit of risk. If you would invest  2,258  in Compass Diversified on December 30, 2024 and sell it today you would lose (44.00) from holding Compass Diversified or give up 1.95% of portfolio value over 90 days.

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

Compass Diversified  vs.  Valmont Industries

Compass Diversified

Risk-Adjusted Performance

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.

Valmont Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Valmont Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong primary indicators, Valmont Industries is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Compass Diversified and Valmont Industries

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

The idea behind Compass Diversified and Valmont Industries 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.