Correlation Between Compass Diversified and Brookfield Business

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

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

Diversification Opportunities for Compass Diversified and Brookfield Business

-0.51

Correlation Coefficient

Compass Diversified  Brookfield Business

Excellent diversification

The 3 months correlation between Compass and Brookfield is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Compass Diversified and Brookfield Business Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield Business 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 Brookfield Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield Business has no effect on the direction of Compass Diversified i.e., Compass Diversified and Brookfield Business go up and down completely randomly.

Pair Corralation between Compass Diversified and Brookfield Business

Assuming the 90 days trading horizon Compass Diversified is expected to generate 0.27 times more return on investment than Brookfield Business. However, Compass Diversified is 3.64 times less risky than Brookfield Business. It trades about 0.08 of its potential returns per unit of risk. Brookfield Business Partners is currently generating about -0.03 per unit of risk. If you would invest  2,315  in Compass Diversified on November 29, 2024 and sell it today you would earn a total of  59.00  from holding Compass Diversified or generate 2.55% return on investment over 90 days.

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

Compass Diversified  vs.  Brookfield Business Partners

Compass Diversified

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Compass Diversified are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. 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.

Brookfield Business

Risk-Adjusted Performance

Very Weak

Over the last 90 days Brookfield Business Partners has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental drivers, Brookfield Business is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Compass Diversified and Brookfield Business

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

The idea behind Compass Diversified and Brookfield Business Partners 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.