Correlation Between Compass Diversified and Itochu Corp

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

Diversification Opportunities for Compass Diversified and Itochu Corp

0.2

Correlation Coefficient

Compass Diversified  Itochu Corp

Modest diversification

The 3 months correlation between Compass and Itochu is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Compass Diversified Holdings and Itochu Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Itochu Corp ADR 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 Itochu Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Itochu Corp ADR has no effect on the direction of Compass Diversified i.e., Compass Diversified and Itochu Corp go up and down completely randomly.

Pair Corralation between Compass Diversified and Itochu Corp

Given the investment horizon of 90 days Compass Diversified Holdings is expected to under-perform the Itochu Corp. But the stock apears to be less risky and, when comparing its historical volatility, Compass Diversified Holdings is 1.06 times less risky than Itochu Corp. The stock trades about -0.16 of its potential returns per unit of risk. The Itochu Corp ADR is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  9,879  in Itochu Corp ADR on December 29, 2024 and sell it today you would lose (447.00) from holding Itochu Corp ADR or give up 4.52% of portfolio value over 90 days.

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

Compass Diversified Holdings  vs.  Itochu Corp ADR

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 abnormal performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Itochu Corp ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Itochu Corp ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Itochu Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Compass Diversified and Itochu Corp

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

The idea behind Compass Diversified Holdings and Itochu Corp ADR 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.