Correlation Between Compass Diversified and Tejon Ranch

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

Diversification Opportunities for Compass Diversified and Tejon Ranch

-0.24

Correlation Coefficient

Compass Diversified  Tejon Ranch

Very good diversification

The 3 months correlation between Compass and Tejon is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Compass Diversified Holdings and Tejon Ranch Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tejon Ranch 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 Tejon Ranch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tejon Ranch has no effect on the direction of Compass Diversified i.e., Compass Diversified and Tejon Ranch go up and down completely randomly.

Pair Corralation between Compass Diversified and Tejon Ranch

Given the investment horizon of 90 days Compass Diversified Holdings is expected to under-perform the Tejon Ranch. In addition to that, Compass Diversified is 1.09 times more volatile than Tejon Ranch Co. It trades about -0.16 of its total potential returns per unit of risk. Tejon Ranch Co is currently generating about 0.02 per unit of volatility. If you would invest  1,582  in Tejon Ranch Co on December 29, 2024 and sell it today you would earn a total of  26.00  from holding Tejon Ranch Co or generate 1.64% return on investment over 90 days.

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

Compass Diversified Holdings  vs.  Tejon Ranch Co

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.

Tejon Ranch

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tejon Ranch Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Tejon Ranch is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Compass Diversified and Tejon Ranch

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

The idea behind Compass Diversified Holdings and Tejon Ranch Co 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.

Check out your portfolio center.

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.