Correlation Between AG Mortgage and Compass Diversified

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

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

Diversification Opportunities for AG Mortgage and Compass Diversified

0.14

Correlation Coefficient

AG Mortgage  Compass Diversified

Average diversification

The 3 months correlation between MITN and Compass is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding AG Mortgage Investment and Compass Diversified Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass Diversified and AG Mortgage 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 AG Mortgage Investment 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 AG Mortgage i.e., AG Mortgage and Compass Diversified go up and down completely randomly.

Pair Corralation between AG Mortgage and Compass Diversified

Given the investment horizon of 90 days AG Mortgage is expected to generate 6.28 times less return on investment than Compass Diversified. But when comparing it to its historical volatility, AG Mortgage Investment is 5.26 times less risky than Compass Diversified. It trades about 0.29 of its potential returns per unit of risk. Compass Diversified Holdings is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest  2,272  in Compass Diversified Holdings on October 25, 2024 and sell it today you would earn a total of  158.00  from holding Compass Diversified Holdings or generate 6.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	94.74%
Values	Daily Returns

AG Mortgage Investment  vs.  Compass Diversified Holdings

AG Mortgage Investment

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AG Mortgage Investment are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, AG Mortgage is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Compass Diversified

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Compass Diversified Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with AG Mortgage and Compass Diversified

The main advantage of trading using opposite AG Mortgage and Compass Diversified positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AG Mortgage 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 AG Mortgage Investment 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.