Correlation Between Compass Diversified and Vulcan Materials

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

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

Diversification Opportunities for Compass Diversified and Vulcan Materials

0.54

Correlation Coefficient

Compass Diversified  Vulcan Materials

Very weak diversification

The 3 months correlation between Compass and Vulcan is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Compass Diversified Holdings and Vulcan Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vulcan Materials 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 Holdings are associated (or correlated) with Vulcan Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vulcan Materials has no effect on the direction of Compass Diversified i.e., Compass Diversified and Vulcan Materials go up and down completely randomly.

Pair Corralation between Compass Diversified and Vulcan Materials

Assuming the 90 days trading horizon Compass Diversified Holdings is expected to under-perform the Vulcan Materials. But the preferred stock apears to be less risky and, when comparing its historical volatility, Compass Diversified Holdings is 1.48 times less risky than Vulcan Materials. The preferred stock trades about -0.03 of its potential returns per unit of risk. The Vulcan Materials is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  27,056  in Vulcan Materials on February 3, 2025 and sell it today you would lose (351.00) from holding Vulcan Materials or give up 1.3% of portfolio value over 90 days.

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

Compass Diversified Holdings  vs.  Vulcan Materials

Compass Diversified

Risk-Adjusted Performance

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 newest stock price disturbance, may contribute to short-term losses for the investors.

Vulcan Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vulcan Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, Vulcan Materials is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Compass Diversified and Vulcan Materials

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

The idea behind Compass Diversified Holdings and Vulcan Materials 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.