Correlation Between WK Kellogg and Compass Diversified

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Can any of the company-specific risk be diversified away by investing in both WK Kellogg 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 WK Kellogg and Compass Diversified into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between WK Kellogg Co and Compass Diversified Holdings, you can compare the effects of market volatilities on WK Kellogg 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 WK Kellogg with a short position of Compass Diversified. Check out your portfolio center. Please also check ongoing floating volatility patterns of WK Kellogg and Compass Diversified.

Diversification Opportunities for WK Kellogg and Compass Diversified

-0.67
  Correlation Coefficient

Excellent diversification

The 3 months correlation between KLG and Compass is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding WK Kellogg Co and Compass Diversified Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass Diversified and WK Kellogg 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 WK Kellogg Co 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 WK Kellogg i.e., WK Kellogg and Compass Diversified go up and down completely randomly.

Pair Corralation between WK Kellogg and Compass Diversified

Considering the 90-day investment horizon WK Kellogg Co is expected to under-perform the Compass Diversified. In addition to that, WK Kellogg is 2.71 times more volatile than Compass Diversified Holdings. It trades about -0.42 of its total potential returns per unit of risk. Compass Diversified Holdings is currently generating about 0.19 per unit of volatility. If you would invest  2,300  in Compass Diversified Holdings on October 11, 2024 and sell it today you would earn a total of  87.00  from holding Compass Diversified Holdings or generate 3.78% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy95.24%
ValuesDaily Returns

WK Kellogg Co  vs.  Compass Diversified Holdings

 Performance 
       Timeline  
WK Kellogg 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days WK Kellogg Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, WK Kellogg is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.
Compass Diversified 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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 somewhat strong basic indicators, Compass Diversified is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

WK Kellogg and Compass Diversified Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with WK Kellogg and Compass Diversified

The main advantage of trading using opposite WK Kellogg and Compass Diversified positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WK Kellogg 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 WK Kellogg Co and Compass Diversified Holdings 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.

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