Correlation Between Compass Diversified and TFI International

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

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

Diversification Opportunities for Compass Diversified and TFI International

-0.39

Correlation Coefficient

Compass Diversified  TFI International

Very good diversification

The 3 months correlation between Compass and TFI is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Compass Diversified and TFI International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TFI International 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 TFI International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TFI International has no effect on the direction of Compass Diversified i.e., Compass Diversified and TFI International go up and down completely randomly.

Pair Corralation between Compass Diversified and TFI International

Assuming the 90 days trading horizon Compass Diversified is expected to under-perform the TFI International. But the preferred stock apears to be less risky and, when comparing its historical volatility, Compass Diversified is 5.01 times less risky than TFI International. The preferred stock trades about -0.06 of its potential returns per unit of risk. The TFI International is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  14,582  in TFI International on September 3, 2024 and sell it today you would earn a total of  586.00  from holding TFI International or generate 4.02% return on investment over 90 days.

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

Compass Diversified  vs.  TFI International

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.

TFI International

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in TFI International are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong forward indicators, TFI International is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Compass Diversified and TFI International

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

The idea behind Compass Diversified and TFI International 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.