Correlation Between Compass Diversified and Swire Pacific

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

Diversification Opportunities for Compass Diversified and Swire Pacific

0.69

Correlation Coefficient

Compass Diversified  Swire Pacific

Poor diversification

The 3 months correlation between Compass and Swire is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Compass Diversified Holdings and Swire Pacific Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swire Pacific 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 Swire Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Swire Pacific has no effect on the direction of Compass Diversified i.e., Compass Diversified and Swire Pacific go up and down completely randomly.

Pair Corralation between Compass Diversified and Swire Pacific

Given the investment horizon of 90 days Compass Diversified Holdings is expected to under-perform the Swire Pacific. In addition to that, Compass Diversified is 1.71 times more volatile than Swire Pacific Ltd. It trades about -0.16 of its total potential returns per unit of risk. Swire Pacific Ltd is currently generating about -0.04 per unit of volatility. If you would invest  700.00  in Swire Pacific Ltd on December 29, 2024 and sell it today you would lose (23.00) from holding Swire Pacific Ltd or give up 3.29% 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.  Swire Pacific Ltd

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.

Swire Pacific

Risk-Adjusted Performance

Very Weak

Over the last 90 days Swire Pacific Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental drivers, Swire Pacific 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 Swire Pacific

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

The idea behind Compass Diversified Holdings and Swire Pacific Ltd 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.