Correlation Between Compass Diversified and Agro Capital

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

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

Diversification Opportunities for Compass Diversified and Agro Capital

0.25

Correlation Coefficient

Compass Diversified  Agro Capital

Modest diversification

The 3 months correlation between Compass and Agro is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Compass Diversified Holdings and Agro Capital Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Agro Capital Management 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 Holdings are associated (or correlated) with Agro Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Agro Capital Management has no effect on the direction of Compass Diversified i.e., Compass Diversified and Agro Capital go up and down completely randomly.

Pair Corralation between Compass Diversified and Agro Capital

Given the investment horizon of 90 days Compass Diversified is expected to generate 20.48 times less return on investment than Agro Capital. But when comparing it to its historical volatility, Compass Diversified Holdings is 15.55 times less risky than Agro Capital. It trades about 0.05 of its potential returns per unit of risk. Agro Capital Management is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2.30  in Agro Capital Management on September 3, 2024 and sell it today you would lose (0.07) from holding Agro Capital Management or give up 3.04% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Compass Diversified Holdings  vs.  Agro Capital Management

Compass Diversified

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Compass Diversified Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal fundamental indicators, Compass Diversified may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Agro Capital Management

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Agro Capital Management are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile primary indicators, Agro Capital sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Compass Diversified and Agro Capital

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

The idea behind Compass Diversified Holdings and Agro Capital Management 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.