Correlation Between Micron Technology and Compass Diversified

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

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

Diversification Opportunities for Micron Technology and Compass Diversified

0.5

Correlation Coefficient

Micron Technology  Compass Diversified

Very weak diversification

The 3 months correlation between Micron and Compass is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Micron Technology and Compass Diversified Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass Diversified and Micron Technology 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 Micron Technology 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 Micron Technology i.e., Micron Technology and Compass Diversified go up and down completely randomly.

Pair Corralation between Micron Technology and Compass Diversified

Allowing for the 90-day total investment horizon Micron Technology is expected to generate 3.39 times more return on investment than Compass Diversified. However, Micron Technology is 3.39 times more volatile than Compass Diversified Holdings. It trades about 0.25 of its potential returns per unit of risk. Compass Diversified Holdings is currently generating about 0.35 per unit of risk. If you would invest  8,916  in Micron Technology on October 25, 2024 and sell it today you would earn a total of  1,568  from holding Micron Technology or generate 17.59% return on investment over 90 days.

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

Micron Technology  vs.  Compass Diversified Holdings

Micron Technology

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Micron Technology are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Micron Technology is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private 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 Micron Technology and Compass Diversified

The main advantage of trading using opposite Micron Technology and Compass Diversified positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Micron Technology 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 Micron Technology 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.