Correlation Between Compass Diversified and WESCO International

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

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

Diversification Opportunities for Compass Diversified and WESCO International

-0.24

Correlation Coefficient

Compass Diversified  WESCO International

Very good diversification

The 3 months correlation between Compass and WESCO is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Compass Diversified and WESCO International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WESCO International 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 WESCO International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WESCO International has no effect on the direction of Compass Diversified i.e., Compass Diversified and WESCO International go up and down completely randomly.

Pair Corralation between Compass Diversified and WESCO International

Assuming the 90 days trading horizon Compass Diversified is expected to generate 2.97 times more return on investment than WESCO International. However, Compass Diversified is 2.97 times more volatile than WESCO International. It trades about 0.05 of its potential returns per unit of risk. WESCO International is currently generating about 0.12 per unit of risk. If you would invest  2,085  in Compass Diversified on September 2, 2024 and sell it today you would earn a total of  287.00  from holding Compass Diversified or generate 13.76% return on investment over 90 days.

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

Compass Diversified  vs.  WESCO International

Compass Diversified

Risk-Adjusted Performance

0 of 100

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 rather sound fundamental indicators, Compass Diversified is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

WESCO International

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in WESCO International are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, WESCO International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Compass Diversified and WESCO International

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

The idea behind Compass Diversified and WESCO International 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.