Correlation Between Compass Diversified and Cactus Acquisition

Can any of the company-specific risk be diversified away by investing in both Compass Diversified and Cactus Acquisition 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 Cactus Acquisition 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 Cactus Acquisition Corp, you can compare the effects of market volatilities on Compass Diversified and Cactus Acquisition 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 Cactus Acquisition. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compass Diversified and Cactus Acquisition.

Diversification Opportunities for Compass Diversified and Cactus Acquisition

0.7

Correlation Coefficient

Compass Diversified  Cactus Acquisition

Poor diversification

The 3 months correlation between Compass and Cactus is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Compass Diversified Holdings and Cactus Acquisition Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cactus Acquisition Corp 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 Cactus Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cactus Acquisition Corp has no effect on the direction of Compass Diversified i.e., Compass Diversified and Cactus Acquisition go up and down completely randomly.

Pair Corralation between Compass Diversified and Cactus Acquisition

Given the investment horizon of 90 days Compass Diversified Holdings is expected to under-perform the Cactus Acquisition. In addition to that, Compass Diversified is 1.09 times more volatile than Cactus Acquisition Corp. It trades about -0.02 of its total potential returns per unit of risk. Cactus Acquisition Corp is currently generating about 0.01 per unit of volatility. If you would invest  1,121  in Cactus Acquisition Corp on December 5, 2024 and sell it today you would lose (9.00) from holding Cactus Acquisition Corp or give up 0.8% of portfolio value over 90 days.

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

Compass Diversified Holdings  vs.  Cactus Acquisition Corp

Compass Diversified

Risk-Adjusted Performance

Very Weak

Over the last 90 days Compass Diversified Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Stock's fundamental indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Cactus Acquisition Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cactus Acquisition Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Cactus Acquisition is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Compass Diversified and Cactus Acquisition

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

The idea behind Compass Diversified Holdings and Cactus Acquisition Corp 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.