Correlation Between Northern Dynasty and Rare Element

Can any of the company-specific risk be diversified away by investing in both Northern Dynasty and Rare Element 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 Rare Element 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 Rare Element Resources, you can compare the effects of market volatilities on Northern Dynasty and Rare Element 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 Rare Element. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Dynasty and Rare Element.

Diversification Opportunities for Northern Dynasty and Rare Element

0.52

Correlation Coefficient

Northern Dynasty  Rare Element

Very weak diversification

The 3 months correlation between Northern and Rare is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Northern Dynasty Minerals and Rare Element Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rare Element Resources 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 Rare Element. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rare Element Resources has no effect on the direction of Northern Dynasty i.e., Northern Dynasty and Rare Element go up and down completely randomly.

Pair Corralation between Northern Dynasty and Rare Element

Considering the 90-day investment horizon Northern Dynasty is expected to generate 17.61 times less return on investment than Rare Element. But when comparing it to its historical volatility, Northern Dynasty Minerals is 1.4 times less risky than Rare Element. It trades about 0.06 of its potential returns per unit of risk. Rare Element Resources is currently generating about 0.8 of returns per unit of risk over similar time horizon. If you would invest  51.00  in Rare Element Resources on September 12, 2024 and sell it today you would earn a total of  12.00  from holding Rare Element Resources or generate 23.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	1.14%
Values	Daily Returns

Northern Dynasty Minerals  vs.  Rare Element Resources

Northern Dynasty Minerals

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Dynasty Minerals are ranked lower than 10 (%) 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.

Rare Element Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rare Element Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, Rare Element is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Northern Dynasty and Rare Element

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

The idea behind Northern Dynasty Minerals and Rare Element Resources 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.