Correlation Between Crane and Compass Diversified

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

By analyzing existing cross correlation between Crane Company and Compass Diversified, you can compare the effects of market volatilities on Crane and Compass Diversified 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 Crane with a short position of Compass Diversified. Check out your portfolio center. Please also check ongoing floating volatility patterns of Crane and Compass Diversified.

Diversification Opportunities for Crane and Compass Diversified

-0.69

Correlation Coefficient

Crane  Compass Diversified

Excellent diversification

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

Pair Corralation between Crane and Compass Diversified

Allowing for the 90-day total investment horizon Crane Company is expected to generate 5.53 times more return on investment than Compass Diversified. However, Crane is 5.53 times more volatile than Compass Diversified. It trades about 0.17 of its potential returns per unit of risk. Compass Diversified is currently generating about -0.14 per unit of risk. If you would invest  15,073  in Crane Company on September 1, 2024 and sell it today you would earn a total of  3,135  from holding Crane Company or generate 20.8% return on investment over 90 days.

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

Crane Company  vs.  Compass Diversified

Crane Company

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Crane Company are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Crane reported solid returns over the last few months and may actually be approaching a breakup point.

Compass Diversified

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Compass Diversified has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Compass Diversified is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Crane and Compass Diversified

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

The idea behind Crane Company and Compass Diversified 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.