Correlation Between Compass Diversified and MDU Resources

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

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

Diversification Opportunities for Compass Diversified and MDU Resources

-0.81

Correlation Coefficient

Compass Diversified  MDU Resources

Pay attention - limited upside

The 3 months correlation between Compass and MDU is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Compass Diversified and MDU Resources Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MDU Resources Group and Compass Diversified 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 Compass Diversified are associated (or correlated) with MDU Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MDU Resources Group has no effect on the direction of Compass Diversified i.e., Compass Diversified and MDU Resources go up and down completely randomly.

Pair Corralation between Compass Diversified and MDU Resources

Assuming the 90 days trading horizon Compass Diversified is expected to generate 7.02 times less return on investment than MDU Resources. But when comparing it to its historical volatility, Compass Diversified is 1.22 times less risky than MDU Resources. It trades about 0.01 of its potential returns per unit of risk. MDU Resources Group is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,077  in MDU Resources Group on September 28, 2024 and sell it today you would earn a total of  743.00  from holding MDU Resources Group or generate 68.99% return on investment over 90 days.

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

Compass Diversified  vs.  MDU Resources Group

Compass Diversified

Risk-Adjusted Performance

0 of 100

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 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.

MDU Resources Group

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MDU Resources Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal fundamental indicators, MDU Resources unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Compass Diversified and MDU Resources

The main advantage of trading using opposite Compass Diversified and MDU Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Compass Diversified position performs unexpectedly, MDU Resources 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 MDU Resources will offset losses from the drop in MDU Resources' long position.

The idea behind Compass Diversified and MDU Resources Group 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.