Correlation Between American Rare and Scotch Creek

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

Diversification Opportunities for American Rare and Scotch Creek

0.46

Correlation Coefficient

American Rare  Scotch Creek

Very weak diversification

The 3 months correlation between American and Scotch is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding American Rare Earths and Scotch Creek Ventures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scotch Creek Ventures 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 Scotch Creek. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scotch Creek Ventures has no effect on the direction of American Rare i.e., American Rare and Scotch Creek go up and down completely randomly.

Pair Corralation between American Rare and Scotch Creek

Assuming the 90 days horizon American Rare is expected to generate 39.03 times less return on investment than Scotch Creek. But when comparing it to its historical volatility, American Rare Earths is 5.02 times less risky than Scotch Creek. It trades about 0.01 of its potential returns per unit of risk. Scotch Creek Ventures is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2.21  in Scotch Creek Ventures on November 29, 2024 and sell it today you would earn a total of  1.12  from holding Scotch Creek Ventures or generate 50.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

American Rare Earths  vs.  Scotch Creek Ventures

American Rare Earths

Risk-Adjusted Performance

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.

Scotch Creek Ventures

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Scotch Creek Ventures are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Scotch Creek reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Rare and Scotch Creek

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

The idea behind American Rare Earths and Scotch Creek Ventures 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.