Correlation Between Trane Technologies and Compass Diversified

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

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

Diversification Opportunities for Trane Technologies and Compass Diversified

0.63

Correlation Coefficient

Trane Technologies  Compass Diversified

Poor diversification

The 3 months correlation between Trane and Compass is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Trane Technologies plc and Compass Diversified in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass Diversified and Trane Technologies 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 Trane Technologies plc 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 Trane Technologies i.e., Trane Technologies and Compass Diversified go up and down completely randomly.

Pair Corralation between Trane Technologies and Compass Diversified

Allowing for the 90-day total investment horizon Trane Technologies plc is expected to under-perform the Compass Diversified. In addition to that, Trane Technologies is 2.98 times more volatile than Compass Diversified. It trades about -0.05 of its total potential returns per unit of risk. Compass Diversified is currently generating about -0.07 per unit of volatility. If you would invest  2,331  in Compass Diversified on December 29, 2024 and sell it today you would lose (65.00) from holding Compass Diversified or give up 2.79% of portfolio value over 90 days.

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

Trane Technologies plc  vs.  Compass Diversified

Trane Technologies plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Trane Technologies plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Trane Technologies is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private 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. Despite somewhat strong fundamental drivers, 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 Trane Technologies and Compass Diversified

The main advantage of trading using opposite Trane Technologies and Compass Diversified positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Trane Technologies 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 Trane Technologies plc 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.