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, 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

-0.05

Correlation Coefficient

Steel Partners  Compass Diversified

Good diversification

The 3 months correlation between Steel and Compass is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Steel Partners Holdings and Compass Diversified 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

Given the investment horizon of 90 days Steel Partners Holdings is expected to generate 3.79 times more return on investment than Compass Diversified. However, Steel Partners is 3.79 times more volatile than Compass Diversified. It trades about 0.01 of its potential returns per unit of risk. Compass Diversified is currently generating about -0.06 per unit of risk. If you would invest  4,274  in Steel Partners Holdings on December 30, 2024 and sell it today you would lose (80.00) from holding Steel Partners Holdings or give up 1.87% of portfolio value over 90 days.

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

Steel Partners Holdings  vs.  Compass Diversified

Steel Partners Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Steel Partners Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable essential indicators, Steel Partners is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Compass Diversified

Risk-Adjusted Performance

Very Weak

Over the last 90 days Compass Diversified has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Compass Diversified is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

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 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.