Correlation Between Brookdale Senior and Compass Pathways

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

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

Diversification Opportunities for Brookdale Senior and Compass Pathways

0.78

Correlation Coefficient

Brookdale Senior  Compass Pathways

Poor diversification

The 3 months correlation between Brookdale and Compass is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Brookdale Senior Living and Compass Pathways Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass Pathways Plc and Brookdale Senior 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 Brookdale Senior Living are associated (or correlated) with Compass Pathways. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compass Pathways Plc has no effect on the direction of Brookdale Senior i.e., Brookdale Senior and Compass Pathways go up and down completely randomly.

Pair Corralation between Brookdale Senior and Compass Pathways

Considering the 90-day investment horizon Brookdale Senior Living is expected to under-perform the Compass Pathways. But the stock apears to be less risky and, when comparing its historical volatility, Brookdale Senior Living is 2.06 times less risky than Compass Pathways. The stock trades about -0.16 of its potential returns per unit of risk. The Compass Pathways Plc is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  481.00  in Compass Pathways Plc on October 8, 2024 and sell it today you would lose (36.00) from holding Compass Pathways Plc or give up 7.48% of portfolio value over 90 days.

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

Brookdale Senior Living  vs.  Compass Pathways Plc

Brookdale Senior Living

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brookdale Senior Living has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's forward-looking signals remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Compass Pathways Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Compass Pathways Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Brookdale Senior and Compass Pathways

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

The idea behind Brookdale Senior Living and Compass Pathways Plc 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.