Correlation Between American Rare and Jervois Mining

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

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

Diversification Opportunities for American Rare and Jervois Mining

0.45

Correlation Coefficient

American Rare  Jervois Mining

Very weak diversification

The 3 months correlation between American and Jervois is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding American Rare Earths and Jervois Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jervois Mining and American Rare 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 American Rare Earths are associated (or correlated) with Jervois Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jervois Mining has no effect on the direction of American Rare i.e., American Rare and Jervois Mining go up and down completely randomly.

Pair Corralation between American Rare and Jervois Mining

Assuming the 90 days horizon American Rare is expected to generate 9.55 times less return on investment than Jervois Mining. But when comparing it to its historical volatility, American Rare Earths is 3.0 times less risky than Jervois Mining. It trades about 0.02 of its potential returns per unit of risk. Jervois Mining is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  0.80  in Jervois Mining on September 4, 2024 and sell it today you would earn a total of  0.02  from holding Jervois Mining or generate 2.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

American Rare Earths  vs.  Jervois Mining

American Rare Earths

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Rare Earths are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, American Rare is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Jervois Mining

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Jervois Mining are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Jervois Mining reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Rare and Jervois Mining

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

The idea behind American Rare Earths and Jervois Mining 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.