Correlation Between Resolute Forest and CompoSecure

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

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

Diversification Opportunities for Resolute Forest and CompoSecure

-0.11

Correlation Coefficient

Resolute Forest  CompoSecure

Good diversification

The 3 months correlation between Resolute and CompoSecure is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Resolute Forest Products and CompoSecure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CompoSecure and Resolute Forest 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 Resolute Forest Products are associated (or correlated) with CompoSecure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CompoSecure has no effect on the direction of Resolute Forest i.e., Resolute Forest and CompoSecure go up and down completely randomly.

Pair Corralation between Resolute Forest and CompoSecure

If you would invest  234.00  in CompoSecure on October 3, 2024 and sell it today you would earn a total of  231.00  from holding CompoSecure or generate 98.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	1.19%
Values	Daily Returns

Resolute Forest Products  vs.  CompoSecure

Resolute Forest Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Resolute Forest Products has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Resolute Forest is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

CompoSecure

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CompoSecure are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, CompoSecure showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Resolute Forest and CompoSecure

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

The idea behind Resolute Forest Products and CompoSecure 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.