Correlation Between Compass Diversified and Multi Ways

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

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

Diversification Opportunities for Compass Diversified and Multi Ways

0.15

Correlation Coefficient

Compass Diversified  Multi Ways

Average diversification

The 3 months correlation between Compass and Multi is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Compass Diversified and Multi Ways Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Multi Ways 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 Multi Ways. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Multi Ways Holdings has no effect on the direction of Compass Diversified i.e., Compass Diversified and Multi Ways go up and down completely randomly.

Pair Corralation between Compass Diversified and Multi Ways

Assuming the 90 days trading horizon Compass Diversified is expected to under-perform the Multi Ways. But the preferred stock apears to be less risky and, when comparing its historical volatility, Compass Diversified is 11.69 times less risky than Multi Ways. The preferred stock trades about -0.49 of its potential returns per unit of risk. The Multi Ways Holdings is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  24.00  in Multi Ways Holdings on September 17, 2024 and sell it today you would earn a total of  1.00  from holding Multi Ways Holdings or generate 4.17% return on investment over 90 days.

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

Compass Diversified  vs.  Multi Ways Holdings

Compass Diversified

Risk-Adjusted Performance

0 of 100

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.

Multi Ways Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Multi Ways Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Compass Diversified and Multi Ways

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

The idea behind Compass Diversified and Multi Ways 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.