Correlation Between Compass Diversified and MSA Safety

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

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

Diversification Opportunities for Compass Diversified and MSA Safety

-0.6

Correlation Coefficient

Compass Diversified  MSA Safety

Excellent diversification

The 3 months correlation between Compass and MSA is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Compass Diversified and MSA Safety in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MSA Safety 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 MSA Safety. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MSA Safety has no effect on the direction of Compass Diversified i.e., Compass Diversified and MSA Safety go up and down completely randomly.

Pair Corralation between Compass Diversified and MSA Safety

Assuming the 90 days trading horizon Compass Diversified is expected to generate 0.57 times more return on investment than MSA Safety. However, Compass Diversified is 1.75 times less risky than MSA Safety. It trades about 0.01 of its potential returns per unit of risk. MSA Safety is currently generating about -0.07 per unit of risk. If you would invest  2,354  in Compass Diversified on November 19, 2024 and sell it today you would earn a total of  5.00  from holding Compass Diversified or generate 0.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

Compass Diversified  vs.  MSA Safety

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. In spite of rather sound fundamental indicators, Compass Diversified is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

MSA Safety

Risk-Adjusted Performance

Very Weak

Over the last 90 days MSA Safety has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, MSA Safety is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Compass Diversified and MSA Safety

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

The idea behind Compass Diversified and MSA Safety 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.