Correlation Between Compass Diversified and AMREP

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

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

Diversification Opportunities for Compass Diversified and AMREP

0.72

Correlation Coefficient

Compass Diversified  AMREP

Poor diversification

The 3 months correlation between Compass and AMREP is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Compass Diversified and AMREP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AMREP 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 AMREP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AMREP has no effect on the direction of Compass Diversified i.e., Compass Diversified and AMREP go up and down completely randomly.

Pair Corralation between Compass Diversified and AMREP

Assuming the 90 days trading horizon Compass Diversified is expected to generate 0.18 times more return on investment than AMREP. However, Compass Diversified is 5.62 times less risky than AMREP. It trades about -0.07 of its potential returns per unit of risk. AMREP is currently generating about -0.21 per unit of risk. If you would invest  2,331  in Compass Diversified on December 30, 2024 and sell it today you would lose (65.00) from holding Compass Diversified or give up 2.79% 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.  AMREP

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 fundamental drivers, Compass Diversified is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

AMREP

Risk-Adjusted Performance

Very Weak

Over the last 90 days AMREP has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Compass Diversified and AMREP

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

The idea behind Compass Diversified and AMREP 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.