Correlation Between IperionX Limited and Compass Minerals

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

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

Diversification Opportunities for IperionX Limited and Compass Minerals

0.84

Correlation Coefficient

IperionX Limited  Compass Minerals

Very poor diversification

The 3 months correlation between IperionX and Compass is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding IperionX Limited American and Compass Minerals International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass Minerals Int and IperionX Limited 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 IperionX Limited American are associated (or correlated) with Compass Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compass Minerals Int has no effect on the direction of IperionX Limited i.e., IperionX Limited and Compass Minerals go up and down completely randomly.

Pair Corralation between IperionX Limited and Compass Minerals

Considering the 90-day investment horizon IperionX Limited is expected to generate 1.4 times less return on investment than Compass Minerals. But when comparing it to its historical volatility, IperionX Limited American is 1.57 times less risky than Compass Minerals. It trades about 0.25 of its potential returns per unit of risk. Compass Minerals International is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  814.00  in Compass Minerals International on August 31, 2024 and sell it today you would earn a total of  756.00  from holding Compass Minerals International or generate 92.87% return on investment over 90 days.

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

IperionX Limited American  vs.  Compass Minerals International

IperionX Limited American

Risk-Adjusted Performance

19 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in IperionX Limited American are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, IperionX Limited showed solid returns over the last few months and may actually be approaching a breakup point.

Compass Minerals Int

Risk-Adjusted Performance

17 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Compass Minerals International are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady primary indicators, Compass Minerals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IperionX Limited and Compass Minerals

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

The idea behind IperionX Limited American and Compass Minerals 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.