Correlation Between Ameriwest Lithium and MP Materials

Can any of the company-specific risk be diversified away by investing in both Ameriwest Lithium and MP Materials 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 Ameriwest Lithium and MP Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Ameriwest Lithium and MP Materials

0.22

Correlation Coefficient

Ameriwest Lithium  MP Materials

Modest diversification

The 3 months correlation between Ameriwest and MP Materials is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Ameriwest Lithium and MP Materials Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MP Materials Corp and Ameriwest Lithium 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 Ameriwest Lithium are associated (or correlated) with MP Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MP Materials Corp has no effect on the direction of Ameriwest Lithium i.e., Ameriwest Lithium and MP Materials go up and down completely randomly.

Pair Corralation between Ameriwest Lithium and MP Materials

Assuming the 90 days horizon Ameriwest Lithium is expected to under-perform the MP Materials. In addition to that, Ameriwest Lithium is 2.26 times more volatile than MP Materials Corp. It trades about -0.03 of its total potential returns per unit of risk. MP Materials Corp is currently generating about 0.04 per unit of volatility. If you would invest  1,650  in MP Materials Corp on October 12, 2024 and sell it today you would earn a total of  288.00  from holding MP Materials Corp or generate 17.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Ameriwest Lithium  vs.  MP Materials Corp

Ameriwest Lithium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ameriwest Lithium has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

MP Materials Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MP Materials Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, MP Materials reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ameriwest Lithium and MP Materials

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

The idea behind Ameriwest Lithium and MP Materials Corp 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.