Correlation Between Citic and Compass Diversified

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

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

Diversification Opportunities for Citic and Compass Diversified

0.38

Correlation Coefficient

Citic  Compass Diversified

Weak diversification

The 3 months correlation between Citic and Compass is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Citic Ltd ADR and Compass Diversified Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass Diversified and Citic 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 Citic Ltd ADR 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 Citic i.e., Citic and Compass Diversified go up and down completely randomly.

Pair Corralation between Citic and Compass Diversified

Assuming the 90 days horizon Citic Ltd ADR is expected to generate 2.84 times more return on investment than Compass Diversified. However, Citic is 2.84 times more volatile than Compass Diversified Holdings. It trades about 0.04 of its potential returns per unit of risk. Compass Diversified Holdings is currently generating about 0.05 per unit of risk. If you would invest  436.00  in Citic Ltd ADR on September 5, 2024 and sell it today you would earn a total of  171.00  from holding Citic Ltd ADR or generate 39.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	83.03%
Values	Daily Returns

Citic Ltd ADR  vs.  Compass Diversified Holdings

Citic Ltd ADR

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citic Ltd ADR are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating fundamental indicators, Citic showed solid returns over the last few months and may actually be approaching a breakup point.

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 demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citic and Compass Diversified

The main advantage of trading using opposite Citic and Compass Diversified positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Citic 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 Citic Ltd ADR 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.