Correlation Between Compass Minerals and IperionX Limited

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

By analyzing existing cross correlation between Compass Minerals International and IperionX Limited American, you can compare the effects of market volatilities on Compass Minerals and IperionX Limited 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 Minerals with a short position of IperionX Limited. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compass Minerals and IperionX Limited.

Diversification Opportunities for Compass Minerals and IperionX Limited

0.85

Correlation Coefficient

Compass Minerals  IperionX Limited

Very poor diversification

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

Pair Corralation between Compass Minerals and IperionX Limited

Considering the 90-day investment horizon Compass Minerals is expected to generate 2.99 times less return on investment than IperionX Limited. In addition to that, Compass Minerals is 1.19 times more volatile than IperionX Limited American. It trades about 0.04 of its total potential returns per unit of risk. IperionX Limited American is currently generating about 0.14 per unit of volatility. If you would invest  1,595  in IperionX Limited American on September 3, 2024 and sell it today you would earn a total of  1,246  from holding IperionX Limited American or generate 78.12% return on investment over 90 days.

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

Compass Minerals International  vs.  IperionX Limited American

Compass Minerals Int

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Compass Minerals International are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile primary indicators, Compass Minerals reported solid returns over the last few months and may actually be approaching a breakup point.

IperionX Limited American

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in IperionX Limited American are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, IperionX Limited showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Compass Minerals and IperionX Limited

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

The idea behind Compass Minerals International and IperionX Limited American 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.