Correlation Between Eagle Point and Compass Diversified

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

By analyzing existing cross correlation between Eagle Point Credit and Compass Diversified, you can compare the effects of market volatilities on Eagle Point and Compass Diversified 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 Eagle Point with a short position of Compass Diversified. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eagle Point and Compass Diversified.

Diversification Opportunities for Eagle Point and Compass Diversified

0.53

Correlation Coefficient

Eagle Point  Compass Diversified

Very weak diversification

The 3 months correlation between Eagle and Compass is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Point Credit and Compass Diversified in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass Diversified and Eagle Point 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 Eagle Point Credit are associated (or correlated) with Compass Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compass Diversified has no effect on the direction of Eagle Point i.e., Eagle Point and Compass Diversified go up and down completely randomly.

Pair Corralation between Eagle Point and Compass Diversified

Assuming the 90 days trading horizon Eagle Point is expected to generate 6.1 times less return on investment than Compass Diversified. But when comparing it to its historical volatility, Eagle Point Credit is 4.21 times less risky than Compass Diversified. It trades about 0.16 of its potential returns per unit of risk. Compass Diversified is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  1,476  in Compass Diversified on May 25, 2025 and sell it today you would earn a total of  522.00  from holding Compass Diversified or generate 35.37% return on investment over 90 days.

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

Eagle Point Credit  vs.  Compass Diversified

Eagle Point Credit

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Eagle Point Credit are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Eagle Point is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Compass Diversified

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Compass Diversified are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Compass Diversified exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eagle Point and Compass Diversified

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

The idea behind Eagle Point Credit and Compass Diversified 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.