Correlation Between Snowflake and Compass

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

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

Diversification Opportunities for Snowflake and Compass

0.73

Correlation Coefficient

Snowflake  Compass

Poor diversification

The 3 months correlation between Snowflake and Compass is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Snowflake and Compass in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass and Snowflake 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 Snowflake are associated (or correlated) with Compass. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compass has no effect on the direction of Snowflake i.e., Snowflake and Compass go up and down completely randomly.

Pair Corralation between Snowflake and Compass

Given the investment horizon of 90 days Snowflake is expected to generate 1.42 times more return on investment than Compass. However, Snowflake is 1.42 times more volatile than Compass. It trades about 0.16 of its potential returns per unit of risk. Compass is currently generating about 0.05 per unit of risk. If you would invest  11,367  in Snowflake on September 13, 2024 and sell it today you would earn a total of  5,829  from holding Snowflake or generate 51.28% return on investment over 90 days.

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

Snowflake  vs.  Compass

Snowflake

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Snowflake are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Snowflake showed solid returns over the last few months and may actually be approaching a breakup point.

Compass

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Compass are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady primary indicators, Compass may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Snowflake and Compass

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

The idea behind Snowflake and Compass 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.