Correlation Between Compass Diversified and Transportation Fund

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

By analyzing existing cross correlation between Compass Diversified and Transportation Fund Investor, you can compare the effects of market volatilities on Compass Diversified and Transportation Fund 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 Transportation Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compass Diversified and Transportation Fund.

Diversification Opportunities for Compass Diversified and Transportation Fund

-0.83

Correlation Coefficient

Compass Diversified  Transportation Fund

Pay attention - limited upside

The 3 months correlation between Compass and Transportation is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding Compass Diversified and Transportation Fund Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transportation Fund 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 Transportation Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transportation Fund has no effect on the direction of Compass Diversified i.e., Compass Diversified and Transportation Fund go up and down completely randomly.

Pair Corralation between Compass Diversified and Transportation Fund

Assuming the 90 days trading horizon Compass Diversified is expected to under-perform the Transportation Fund. But the preferred stock apears to be less risky and, when comparing its historical volatility, Compass Diversified is 2.4 times less risky than Transportation Fund. The preferred stock trades about -0.16 of its potential returns per unit of risk. The Transportation Fund Investor is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  5,667  in Transportation Fund Investor on September 13, 2024 and sell it today you would earn a total of  838.00  from holding Transportation Fund Investor or generate 14.79% 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.  Transportation Fund Investor

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.

Transportation Fund

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Transportation Fund Investor are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Transportation Fund showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Compass Diversified and Transportation Fund

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

The idea behind Compass Diversified and Transportation Fund Investor 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.

Check out your portfolio center.

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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.