Correlation Between Old Republic and Compass Diversified

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Can any of the company-specific risk be diversified away by investing in both Old Republic 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 Old Republic and Compass Diversified into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Old Republic International and Compass Diversified Holdings, you can compare the effects of market volatilities on Old Republic 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 Old Republic with a short position of Compass Diversified. Check out your portfolio center. Please also check ongoing floating volatility patterns of Old Republic and Compass Diversified.

Diversification Opportunities for Old Republic and Compass Diversified

-0.35
  Correlation Coefficient

Very good diversification

The 3 months correlation between Old and Compass is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Old Republic International and Compass Diversified Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass Diversified and Old Republic 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 Old Republic International 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 Old Republic i.e., Old Republic and Compass Diversified go up and down completely randomly.

Pair Corralation between Old Republic and Compass Diversified

Considering the 90-day investment horizon Old Republic International is expected to under-perform the Compass Diversified. In addition to that, Old Republic is 1.39 times more volatile than Compass Diversified Holdings. It trades about -0.01 of its total potential returns per unit of risk. Compass Diversified Holdings is currently generating about 0.13 per unit of volatility. If you would invest  2,298  in Compass Diversified Holdings on October 28, 2024 and sell it today you would earn a total of  114.00  from holding Compass Diversified Holdings or generate 4.96% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Old Republic International  vs.  Compass Diversified Holdings

 Performance 
       Timeline  
Old Republic Interna 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Old Republic International are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, Old Republic may actually be approaching a critical reversion point that can send shares even higher in February 2025.
Compass Diversified 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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.

Old Republic and Compass Diversified Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Old Republic and Compass Diversified

The main advantage of trading using opposite Old Republic and Compass Diversified positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Old Republic 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 Old Republic International 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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