Correlation Between Alphabet and MP Materials

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

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

Diversification Opportunities for Alphabet and MP Materials

0.42

Correlation Coefficient

Alphabet  MP Materials

Very weak diversification

The 3 months correlation between Alphabet and M2PM34 is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C 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 Alphabet 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 Alphabet Inc Class C 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 Alphabet i.e., Alphabet and MP Materials go up and down completely randomly.

Pair Corralation between Alphabet and MP Materials

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 0.45 times more return on investment than MP Materials. However, Alphabet Inc Class C is 2.22 times less risky than MP Materials. It trades about 0.15 of its potential returns per unit of risk. MP Materials Corp is currently generating about 0.05 per unit of risk. If you would invest  16,420  in Alphabet Inc Class C on October 7, 2024 and sell it today you would earn a total of  2,893  from holding Alphabet Inc Class C or generate 17.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	93.65%
Values	Daily Returns

Alphabet Inc Class C  vs.  MP Materials Corp

Alphabet Class C

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Alphabet reported solid returns over the last few months and may actually be approaching a breakup point.

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 Alphabet and MP Materials

The main advantage of trading using opposite Alphabet and MP Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet 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 Alphabet Inc Class C 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.