Correlation Between Western Copper and Compass Minerals

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

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

Diversification Opportunities for Western Copper and Compass Minerals

0.02

Correlation Coefficient

Western Copper  Compass Minerals

Significant diversification

The 3 months correlation between Western and Compass is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Western Copper and 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 Western Copper 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 Western Copper and 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 Western Copper i.e., Western Copper and Compass Minerals go up and down completely randomly.

Pair Corralation between Western Copper and Compass Minerals

Considering the 90-day investment horizon Western Copper is expected to generate 119.99 times less return on investment than Compass Minerals. But when comparing it to its historical volatility, Western Copper and is 1.88 times less risky than Compass Minerals. It trades about 0.0 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 September 2, 2024 and sell it today you would earn a total of  729.00  from holding Compass Minerals International or generate 89.56% return on investment over 90 days.

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

Western Copper and  vs.  Compass Minerals International

Western Copper

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Copper and has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Western Copper is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Compass Minerals Int

Risk-Adjusted Performance

17 of 100

Solid

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 Western Copper and Compass Minerals

The main advantage of trading using opposite Western Copper and Compass Minerals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Copper 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 Western Copper and 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.