Correlation Between Compass Diversified and Steel Partners

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

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

Diversification Opportunities for Compass Diversified and Steel Partners

0.49

Correlation Coefficient

Compass Diversified  Steel Partners

Very weak diversification

The 3 months correlation between Compass and Steel is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Compass Diversified and Steel Partners Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steel Partners Holdings 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 Steel Partners. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steel Partners Holdings has no effect on the direction of Compass Diversified i.e., Compass Diversified and Steel Partners go up and down completely randomly.

Pair Corralation between Compass Diversified and Steel Partners

Assuming the 90 days trading horizon Compass Diversified is expected to generate 2.67 times more return on investment than Steel Partners. However, Compass Diversified is 2.67 times more volatile than Steel Partners Holdings. It trades about 0.08 of its potential returns per unit of risk. Steel Partners Holdings is currently generating about 0.06 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 Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Compass Diversified  vs.  Steel Partners Holdings

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.

Steel Partners Holdings

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Partners Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Steel Partners is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Compass Diversified and Steel Partners

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

The idea behind Compass Diversified and Steel Partners Holdings 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.