Correlation Between Northern Dynasty and Compass Minerals

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

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

Diversification Opportunities for Northern Dynasty and Compass Minerals

-0.26

Correlation Coefficient

Northern Dynasty  Compass Minerals

Very good diversification

The 3 months correlation between Northern and Compass is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Northern Dynasty Minerals 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 Northern Dynasty 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 Northern Dynasty Minerals 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 Northern Dynasty i.e., Northern Dynasty and Compass Minerals go up and down completely randomly.

Pair Corralation between Northern Dynasty and Compass Minerals

Considering the 90-day investment horizon Northern Dynasty Minerals is expected to generate 1.13 times more return on investment than Compass Minerals. However, Northern Dynasty is 1.13 times more volatile than Compass Minerals International. It trades about 0.09 of its potential returns per unit of risk. Compass Minerals International is currently generating about -0.03 per unit of risk. If you would invest  27.00  in Northern Dynasty Minerals on October 9, 2024 and sell it today you would earn a total of  35.00  from holding Northern Dynasty Minerals or generate 129.63% return on investment over 90 days.

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

Northern Dynasty Minerals  vs.  Compass Minerals International

Northern Dynasty Minerals

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Dynasty Minerals are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Northern Dynasty disclosed solid returns over the last few months and may actually be approaching a breakup point.

Compass Minerals Int

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Compass Minerals International has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unsteady performance, the Stock's primary indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Northern Dynasty and Compass Minerals

The main advantage of trading using opposite Northern Dynasty and Compass Minerals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Dynasty 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 Northern Dynasty Minerals 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 Anywhere module to track or share privately all of your investments from the convenience of any device.