Correlation Between Core Lithium and MP Materials

Can any of the company-specific risk be diversified away by investing in both Core 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 Core 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 Core Lithium and MP Materials Corp, you can compare the effects of market volatilities on Core 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 Core Lithium with a short position of MP Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Core Lithium and MP Materials.

Diversification Opportunities for Core Lithium and MP Materials

0.05

Correlation Coefficient

Core Lithium  MP Materials

Significant diversification

The 3 months correlation between Core and MP Materials is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Core 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 Core 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 Core 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 Core Lithium i.e., Core Lithium and MP Materials go up and down completely randomly.

Pair Corralation between Core Lithium and MP Materials

Assuming the 90 days horizon Core Lithium is expected to under-perform the MP Materials. In addition to that, Core Lithium is 2.7 times more volatile than MP Materials Corp. It trades about -0.01 of its total potential returns per unit of risk. MP Materials Corp is currently generating about 0.08 per unit of volatility. If you would invest  1,808  in MP Materials Corp on October 21, 2024 and sell it today you would earn a total of  286.00  from holding MP Materials Corp or generate 15.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Core Lithium  vs.  MP Materials Corp

Core Lithium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Core Lithium has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Core Lithium is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

MP Materials Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MP Materials Corp are ranked lower than 6 (%) 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 Core Lithium and MP Materials

The main advantage of trading using opposite Core Lithium and MP Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Core 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 Core 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.