Correlation Between Compass Minerals and Foremost Lithium

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

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

Diversification Opportunities for Compass Minerals and Foremost Lithium

-0.56

Correlation Coefficient

Compass Minerals  Foremost Lithium

Excellent diversification

The 3 months correlation between Compass and Foremost is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Compass Minerals International and Foremost Lithium Resource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foremost Lithium Resource and Compass Minerals 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 Minerals International are associated (or correlated) with Foremost Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foremost Lithium Resource has no effect on the direction of Compass Minerals i.e., Compass Minerals and Foremost Lithium go up and down completely randomly.

Pair Corralation between Compass Minerals and Foremost Lithium

Considering the 90-day investment horizon Compass Minerals is expected to generate 1.47 times less return on investment than Foremost Lithium. But when comparing it to its historical volatility, Compass Minerals International is 3.29 times less risky than Foremost Lithium. It trades about 0.19 of its potential returns per unit of risk. Foremost Lithium Resource is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  31.00  in Foremost Lithium Resource on August 30, 2024 and sell it today you would earn a total of  1.00  from holding Foremost Lithium Resource or generate 3.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	43.75%
Values	Daily Returns

Compass Minerals International  vs.  Foremost Lithium Resource

Compass Minerals Int

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Compass Minerals International are ranked lower than 15 (%) 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.

Foremost Lithium Resource

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Foremost Lithium Resource are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Foremost Lithium showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Compass Minerals and Foremost Lithium

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

The idea behind Compass Minerals International and Foremost Lithium Resource 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.