Correlation Between American Resources and NACCO Industries

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

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

Diversification Opportunities for American Resources and NACCO Industries

-0.28

Correlation Coefficient

American Resources  NACCO Industries

Very good diversification

The 3 months correlation between American and NACCO is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding American Resources Corp and NACCO Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NACCO Industries and American Resources 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 Resources Corp are associated (or correlated) with NACCO Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NACCO Industries has no effect on the direction of American Resources i.e., American Resources and NACCO Industries go up and down completely randomly.

Pair Corralation between American Resources and NACCO Industries

Given the investment horizon of 90 days American Resources Corp is expected to generate 1.57 times more return on investment than NACCO Industries. However, American Resources is 1.57 times more volatile than NACCO Industries. It trades about 0.01 of its potential returns per unit of risk. NACCO Industries is currently generating about -0.01 per unit of risk. If you would invest  182.00  in American Resources Corp on January 17, 2024 and sell it today you would lose (44.00) from holding American Resources Corp or give up 24.18% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

American Resources Corp  vs.  NACCO Industries

American Resources Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Resources Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, American Resources is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

NACCO Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NACCO Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with American Resources and NACCO Industries

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

The idea behind American Resources Corp and NACCO Industries 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.