Correlation Between American Rare and Nexa Resources

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

Diversification Opportunities for American Rare and Nexa Resources

0.01

Correlation Coefficient

American Rare  Nexa Resources

Significant diversification

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

Pair Corralation between American Rare and Nexa Resources

Assuming the 90 days horizon American Rare Earths is expected to under-perform the Nexa Resources. In addition to that, American Rare is 1.88 times more volatile than Nexa Resources SA. It trades about 0.0 of its total potential returns per unit of risk. Nexa Resources SA is currently generating about 0.19 per unit of volatility. If you would invest  640.00  in Nexa Resources SA on September 12, 2024 and sell it today you would earn a total of  166.00  from holding Nexa Resources SA or generate 25.94% return on investment over 90 days.

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

American Rare Earths  vs.  Nexa Resources SA

American Rare Earths

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days American Rare Earths has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Nexa Resources SA

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nexa Resources SA are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Nexa Resources sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Rare and Nexa Resources

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

The idea behind American Rare Earths and Nexa Resources SA 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.