Correlation Between Compass Diversified and Matthews International

Can any of the company-specific risk be diversified away by investing in both Compass Diversified and Matthews 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 Matthews International 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 Matthews International, you can compare the effects of market volatilities on Compass Diversified and Matthews 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 Matthews International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compass Diversified and Matthews International.

Diversification Opportunities for Compass Diversified and Matthews International

0.85

Correlation Coefficient

Compass Diversified  Matthews International

Very poor diversification

The 3 months correlation between Compass and Matthews is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Compass Diversified Holdings and Matthews International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Matthews 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 Holdings are associated (or correlated) with Matthews International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Matthews International has no effect on the direction of Compass Diversified i.e., Compass Diversified and Matthews International go up and down completely randomly.

Pair Corralation between Compass Diversified and Matthews International

Given the investment horizon of 90 days Compass Diversified Holdings is expected to generate 0.79 times more return on investment than Matthews International. However, Compass Diversified Holdings is 1.26 times less risky than Matthews International. It trades about -0.14 of its potential returns per unit of risk. Matthews International is currently generating about -0.21 per unit of risk. If you would invest  2,105  in Compass Diversified Holdings on January 21, 2025 and sell it today you would lose (450.00) from holding Compass Diversified Holdings or give up 21.38% of portfolio value over 90 days.

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

Compass Diversified Holdings  vs.  Matthews International

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 abnormal performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in May 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Matthews International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Matthews International 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 Stock's basic indicators remain fairly stable which may send shares a bit higher in May 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Compass Diversified and Matthews International

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

The idea behind Compass Diversified Holdings and Matthews 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.