Correlation Between Dupont De and MP Materials

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

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

Diversification Opportunities for Dupont De and MP Materials

-0.23

Correlation Coefficient

Dupont De  MP Materials

Very good diversification

The 3 months correlation between Dupont and M2PM34 is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Dupont De Nemours 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 Dupont De 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 Dupont De Nemours 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 Dupont De i.e., Dupont De and MP Materials go up and down completely randomly.

Pair Corralation between Dupont De and MP Materials

Allowing for the 90-day total investment horizon Dupont De Nemours is expected to under-perform the MP Materials. But the stock apears to be less risky and, when comparing its historical volatility, Dupont De Nemours is 4.26 times less risky than MP Materials. The stock trades about -0.25 of its potential returns per unit of risk. The MP Materials Corp is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  2,106  in MP Materials Corp on October 7, 2024 and sell it today you would lose (128.00) from holding MP Materials Corp or give up 6.08% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.24%
Values	Daily Returns

Dupont De Nemours  vs.  MP Materials Corp

Dupont De Nemours

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dupont De Nemours has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

MP Materials Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MP Materials Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, MP Materials may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Dupont De and MP Materials

The main advantage of trading using opposite Dupont De and MP Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dupont De 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 Dupont De Nemours 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.