Correlation Between Itochu Corp and Compass Diversified

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

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

Diversification Opportunities for Itochu Corp and Compass Diversified

-0.36

Correlation Coefficient

Itochu Corp  Compass Diversified

Very good diversification

The 3 months correlation between Itochu and Compass is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Itochu Corp 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 Itochu Corp 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 Itochu Corp 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 Itochu Corp i.e., Itochu Corp and Compass Diversified go up and down completely randomly.

Pair Corralation between Itochu Corp and Compass Diversified

Assuming the 90 days horizon Itochu Corp ADR is expected to under-perform the Compass Diversified. But the pink sheet apears to be less risky and, when comparing its historical volatility, Itochu Corp ADR is 1.01 times less risky than Compass Diversified. The pink sheet trades about -0.04 of its potential returns per unit of risk. The Compass Diversified Holdings is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,110  in Compass Diversified Holdings on September 3, 2024 and sell it today you would earn a total of  260.00  from holding Compass Diversified Holdings or generate 12.32% return on investment over 90 days.

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

Itochu Corp ADR  vs.  Compass Diversified Holdings

Itochu Corp ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Itochu Corp ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Itochu Corp 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

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 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Itochu Corp and Compass Diversified

The main advantage of trading using opposite Itochu Corp and Compass Diversified positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Itochu Corp 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 Itochu Corp 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.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.