Correlation Between Compass Diversified and ARMOUR Residential

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

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

Diversification Opportunities for Compass Diversified and ARMOUR Residential

0.56

Correlation Coefficient

Compass Diversified  ARMOUR Residential

Very weak diversification

The 3 months correlation between Compass and ARMOUR is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Compass Diversified and ARMOUR Residential REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARMOUR Residential REIT 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 ARMOUR Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARMOUR Residential REIT has no effect on the direction of Compass Diversified i.e., Compass Diversified and ARMOUR Residential go up and down completely randomly.

Pair Corralation between Compass Diversified and ARMOUR Residential

Assuming the 90 days trading horizon Compass Diversified is expected to under-perform the ARMOUR Residential. In addition to that, Compass Diversified is 7.84 times more volatile than ARMOUR Residential REIT. It trades about -0.04 of its total potential returns per unit of risk. ARMOUR Residential REIT is currently generating about 0.22 per unit of volatility. If you would invest  2,020  in ARMOUR Residential REIT on May 1, 2025 and sell it today you would earn a total of  167.00  from holding ARMOUR Residential REIT or generate 8.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Compass Diversified  vs.  ARMOUR Residential REIT

Compass Diversified

Risk-Adjusted Performance

Very Weak

Over the last 90 days Compass Diversified has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Preferred Stock's fundamental drivers remain somewhat strong which may send shares a bit higher in August 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

ARMOUR Residential REIT

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ARMOUR Residential REIT are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, ARMOUR Residential may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Compass Diversified and ARMOUR Residential

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

The idea behind Compass Diversified and ARMOUR Residential REIT 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.