Correlation Between Snowflake and Compass

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

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

Diversification Opportunities for Snowflake and Compass

0.01

Correlation Coefficient

Snowflake  Compass

Significant diversification

The 3 months correlation between Snowflake and Compass is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Snowflake and Compass in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass and Snowflake 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 Snowflake are associated (or correlated) with Compass. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compass has no effect on the direction of Snowflake i.e., Snowflake and Compass go up and down completely randomly.

Pair Corralation between Snowflake and Compass

Given the investment horizon of 90 days Snowflake is expected to under-perform the Compass. But the stock apears to be less risky and, when comparing its historical volatility, Snowflake is 1.76 times less risky than Compass. The stock trades about 0.0 of its potential returns per unit of risk. The Compass is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  579.00  in Compass on December 30, 2024 and sell it today you would earn a total of  334.00  from holding Compass or generate 57.69% return on investment over 90 days.

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

Snowflake  vs.  Compass

Snowflake

Risk-Adjusted Performance

Very Weak

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

Compass

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Compass are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady primary indicators, Compass reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Snowflake and Compass

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

The idea behind Snowflake and Compass 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.