Correlation Between Standard Lithium and Compass Minerals

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

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

Diversification Opportunities for Standard Lithium and Compass Minerals

0.64

Correlation Coefficient

Standard Lithium  Compass Minerals

Poor diversification

The 3 months correlation between Standard and Compass is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Standard Lithium 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 Standard Lithium 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 Standard Lithium 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 Standard Lithium i.e., Standard Lithium and Compass Minerals go up and down completely randomly.

Pair Corralation between Standard Lithium and Compass Minerals

Considering the 90-day investment horizon Standard Lithium is expected to generate 1.35 times less return on investment than Compass Minerals. In addition to that, Standard Lithium is 1.31 times more volatile than Compass Minerals International. It trades about 0.12 of its total potential returns per unit of risk. Compass Minerals International is currently generating about 0.22 per unit of volatility. If you would invest  814.00  in Compass Minerals International on September 3, 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	Significant
Accuracy	100.0%
Values	Daily Returns

Standard Lithium  vs.  Compass Minerals International

Standard Lithium

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Standard Lithium are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady essential indicators, Standard Lithium demonstrated solid returns over the last few months and may actually be approaching a breakup point.

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 fragile primary indicators, Compass Minerals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Standard Lithium and Compass Minerals

The main advantage of trading using opposite Standard Lithium and Compass Minerals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Standard Lithium 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 Standard Lithium 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.