Correlation Between Steel Partners and Compass Diversified

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

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

Diversification Opportunities for Steel Partners and Compass Diversified

-0.85

Correlation Coefficient

Steel Partners  Compass Diversified

Pay attention - limited upside

The 3 months correlation between Steel and Compass is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding Steel Partners Holdings and Compass Diversified Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass Diversified and Steel Partners 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 Steel Partners Holdings 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 Steel Partners i.e., Steel Partners and Compass Diversified go up and down completely randomly.

Pair Corralation between Steel Partners and Compass Diversified

Assuming the 90 days trading horizon Steel Partners Holdings is expected to generate 0.14 times more return on investment than Compass Diversified. However, Steel Partners Holdings is 7.0 times less risky than Compass Diversified. It trades about 0.12 of its potential returns per unit of risk. Compass Diversified Holdings is currently generating about -0.16 per unit of risk. If you would invest  2,396  in Steel Partners Holdings on December 30, 2024 and sell it today you would earn a total of  46.00  from holding Steel Partners Holdings or generate 1.92% return on investment over 90 days.

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

Steel Partners Holdings  vs.  Compass Diversified Holdings

Steel Partners Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Partners Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Steel Partners is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Compass Diversified

Risk-Adjusted Performance

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 abnormal performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Steel Partners and Compass Diversified

The main advantage of trading using opposite Steel Partners and Compass Diversified positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Steel Partners 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 Steel Partners Holdings 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.