Correlation Between Swire Pacific and Compass Diversified

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

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

Diversification Opportunities for Swire Pacific and Compass Diversified

0.08

Correlation Coefficient

Swire Pacific  Compass Diversified

Significant diversification

The 3 months correlation between Swire and Compass is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Swire Pacific Ltd and Compass Diversified Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass Diversified and Swire Pacific 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 Swire Pacific Ltd 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 Swire Pacific i.e., Swire Pacific and Compass Diversified go up and down completely randomly.

Pair Corralation between Swire Pacific and Compass Diversified

Assuming the 90 days horizon Swire Pacific is expected to generate 3.23 times less return on investment than Compass Diversified. In addition to that, Swire Pacific is 2.18 times more volatile than Compass Diversified Holdings. It trades about 0.02 of its total potential returns per unit of risk. Compass Diversified Holdings is currently generating about 0.12 per unit of volatility. If you would invest  2,110  in Compass Diversified Holdings on September 3, 2024 and sell it today you would earn a total of  267.00  from holding Compass Diversified Holdings or generate 12.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Swire Pacific Ltd  vs.  Compass Diversified Holdings

Swire Pacific

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Swire Pacific Ltd are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental drivers, Swire Pacific 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

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Compass Diversified Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal fundamental indicators, Compass Diversified may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Swire Pacific and Compass Diversified

The main advantage of trading using opposite Swire Pacific and Compass Diversified positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Swire Pacific 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 Swire Pacific Ltd 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.