Optimising a Mining Portfolio Using CVaR
World Business Institute Australia
Faculty of Business and Law
School of Accounting, Finance and Economics / Finance, Economics, Markets and Accounting Research Centre
The mining industry can be extremely volatile during times of economic downturn. We compare extreme risk in mining share portfolios from each of the world’s seven leading mining areas using Conditional Value at Risk (CVaR) which measures those risks beyond traditional Value at Risk (VaR) metrics. We also show how CVaR can be used to optimise portfolios and minimise extreme risk. We find significant differences between countries in CVaR as compared to standard deviation risk rankings, as well as differences in portfolios optimised using CVaR compared to portfolios using traditional variance methodology. This indicates that investors will not adequately minimise risk using traditional approaches.