Correlation Between Compass Diversified and Compass Diversified

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

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

Diversification Opportunities for Compass Diversified and Compass Diversified

0.87

Correlation Coefficient

Compass Diversified  Compass Diversified

Very poor diversification

The 3 months correlation between Compass and Compass is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Compass Diversified and Compass Diversified in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass Diversified 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 Compass Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compass Diversified has no effect on the direction of Compass Diversified i.e., Compass Diversified and Compass Diversified go up and down completely randomly.

Pair Corralation between Compass Diversified and Compass Diversified

Assuming the 90 days trading horizon Compass Diversified is expected to generate 1.39 times less return on investment than Compass Diversified. But when comparing it to its historical volatility, Compass Diversified is 1.54 times less risky than Compass Diversified. It trades about 0.06 of its potential returns per unit of risk. Compass Diversified is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,248  in Compass Diversified on November 29, 2024 and sell it today you would earn a total of  79.00  from holding Compass Diversified or generate 3.51% return on investment over 90 days.

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

Compass Diversified  vs.  Compass Diversified

Compass Diversified

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Compass Diversified are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Compass Diversified is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Compass Diversified

Risk-Adjusted Performance

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.

Pair Trading with Compass Diversified and Compass Diversified

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

The idea behind Compass Diversified and Compass Diversified 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.