Correlation Between Compass Diversified and Steel Partners

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

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

Diversification Opportunities for Compass Diversified and Steel Partners

0.07

Correlation Coefficient

Compass Diversified  Steel Partners

Significant diversification

The 3 months correlation between Compass and Steel is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Compass Diversified and Steel Partners Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steel Partners Holdings 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 Steel Partners. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steel Partners Holdings has no effect on the direction of Compass Diversified i.e., Compass Diversified and Steel Partners go up and down completely randomly.

Pair Corralation between Compass Diversified and Steel Partners

Assuming the 90 days trading horizon Compass Diversified is expected to under-perform the Steel Partners. But the preferred stock apears to be less risky and, when comparing its historical volatility, Compass Diversified is 1.7 times less risky than Steel Partners. The preferred stock trades about -0.37 of its potential returns per unit of risk. The Steel Partners Holdings is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  4,155  in Steel Partners Holdings on January 6, 2025 and sell it today you would lose (155.00) from holding Steel Partners Holdings or give up 3.73% of portfolio value over 90 days.

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

Compass Diversified  vs.  Steel Partners Holdings

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. In spite of weak performance in the last few months, the Preferred Stock's fundamental indicators remain rather sound which may send shares a bit higher in May 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Steel Partners Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Steel Partners Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable essential indicators, Steel Partners is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Compass Diversified and Steel Partners

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

The idea behind Compass Diversified and Steel Partners 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.