Correlation Between American Rare and Atco Mining

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

Diversification Opportunities for American Rare and Atco Mining

0.67

Correlation Coefficient

American Rare  Atco Mining

Poor diversification

The 3 months correlation between American and Atco is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding American Rare Earths and Atco Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Atco 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 Atco Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Atco Mining has no effect on the direction of American Rare i.e., American Rare and Atco Mining go up and down completely randomly.

Pair Corralation between American Rare and Atco Mining

Assuming the 90 days horizon American Rare is expected to generate 11.23 times less return on investment than Atco Mining. But when comparing it to its historical volatility, American Rare Earths is 6.5 times less risky than Atco Mining. It trades about 0.07 of its potential returns per unit of risk. Atco Mining is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1.15  in Atco Mining on December 29, 2024 and sell it today you would earn a total of  0.75  from holding Atco Mining or generate 65.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	83.87%
Values	Daily Returns

American Rare Earths  vs.  Atco Mining

American Rare Earths

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American Rare Earths are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, American Rare reported solid returns over the last few months and may actually be approaching a breakup point.

Atco Mining

Risk-Adjusted Performance

OK

Over the last 90 days Atco Mining has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly uncertain technical and fundamental indicators, Atco Mining reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Rare and Atco Mining

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

The idea behind American Rare Earths and Atco 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.