Correlation Between STMicroelectronics and Compass Diversified

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

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

Diversification Opportunities for STMicroelectronics and Compass Diversified

0.72

Correlation Coefficient

STMicroelectronics  Compass Diversified

Poor diversification

The 3 months correlation between STMicroelectronics and Compass is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV ADR and Compass Diversified Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass Diversified and STMicroelectronics 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 STMicroelectronics NV ADR 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 STMicroelectronics i.e., STMicroelectronics and Compass Diversified go up and down completely randomly.

Pair Corralation between STMicroelectronics and Compass Diversified

Considering the 90-day investment horizon STMicroelectronics NV ADR is expected to under-perform the Compass Diversified. In addition to that, STMicroelectronics is 2.42 times more volatile than Compass Diversified Holdings. It trades about -0.08 of its total potential returns per unit of risk. Compass Diversified Holdings is currently generating about 0.25 per unit of volatility. If you would invest  2,297  in Compass Diversified Holdings on October 10, 2024 and sell it today you would earn a total of  119.00  from holding Compass Diversified Holdings or generate 5.18% return on investment over 90 days.

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

STMicroelectronics NV ADR  vs.  Compass Diversified Holdings

STMicroelectronics NV ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMicroelectronics NV ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, STMicroelectronics is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Compass Diversified

Risk-Adjusted Performance

0 of 100

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 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 STMicroelectronics and Compass Diversified

The main advantage of trading using opposite STMicroelectronics and Compass Diversified positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STMicroelectronics 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 STMicroelectronics NV ADR 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.