Techniques for balancing data compression and read performance of data chunks of a storage system are described herein. According to one embodiment, similar data chunks are identified based on sketches of a plurality of data chunks stored in the storage system. A first portion of the similar data chunks as a first group is associated with a first storage area. The first storage area is associated with one or more data chunks that are dissimilar to the first group but are likely accessed together. The first group of the similar data chunks and its associated dissimilar data chunks are compressed and stored in the first storage area.