Correlation Between GENERAL and Compass Diversified

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

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

Diversification Opportunities for GENERAL and Compass Diversified

0.45

Correlation Coefficient

GENERAL  Compass Diversified

Very weak diversification

The 3 months correlation between GENERAL and Compass is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding GENERAL ELEC CAP and Compass Diversified Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass Diversified and GENERAL 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 GENERAL ELEC CAP 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 GENERAL i.e., GENERAL and Compass Diversified go up and down completely randomly.

Pair Corralation between GENERAL and Compass Diversified

Assuming the 90 days trading horizon GENERAL ELEC CAP is expected to generate 1.26 times more return on investment than Compass Diversified. However, GENERAL is 1.26 times more volatile than Compass Diversified Holdings. It trades about 0.03 of its potential returns per unit of risk. Compass Diversified Holdings is currently generating about 0.0 per unit of risk. If you would invest  9,500  in GENERAL ELEC CAP on October 11, 2024 and sell it today you would earn a total of  753.00  from holding GENERAL ELEC CAP or generate 7.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	41.7%
Values	Daily Returns

GENERAL ELEC CAP  vs.  Compass Diversified Holdings

GENERAL ELEC CAP

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in GENERAL ELEC CAP are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, GENERAL 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

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 GENERAL and Compass Diversified

The main advantage of trading using opposite GENERAL and Compass Diversified positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GENERAL 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 GENERAL ELEC CAP 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.