Correlation Between Compass Digital and Power Digital

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

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

Diversification Opportunities for Compass Digital and Power Digital

0.32

Correlation Coefficient

Compass Digital  Power Digital

Weak diversification

The 3 months correlation between Compass and Power is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Compass Digital Acquisition and Power Digital Infrastructure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Digital Infras and Compass Digital 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 Digital Acquisition are associated (or correlated) with Power Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Digital Infras has no effect on the direction of Compass Digital i.e., Compass Digital and Power Digital go up and down completely randomly.

Pair Corralation between Compass Digital and Power Digital

If you would invest  6.10  in Compass Digital Acquisition on September 13, 2024 and sell it today you would earn a total of  0.23  from holding Compass Digital Acquisition or generate 3.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	10.0%
Values	Daily Returns

Compass Digital Acquisition  vs.  Power Digital Infrastructure

Compass Digital Acqu

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Compass Digital Acquisition has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly weak basic indicators, Compass Digital showed solid returns over the last few months and may actually be approaching a breakup point.

Power Digital Infras

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Power Digital Infrastructure has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental drivers, Power Digital is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Compass Digital and Power Digital

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

The idea behind Compass Digital Acquisition and Power Digital Infrastructure 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.