Correlation Between GP Investments and MP Materials

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

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

Diversification Opportunities for GP Investments and MP Materials

-0.25

Correlation Coefficient

GP Investments  MP Materials

Very good diversification

The 3 months correlation between GPIV33 and M2PM34 is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding GP Investments 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 GP Investments 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 GP Investments 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 GP Investments i.e., GP Investments and MP Materials go up and down completely randomly.

Pair Corralation between GP Investments and MP Materials

Assuming the 90 days trading horizon GP Investments is expected to generate 0.74 times more return on investment than MP Materials. However, GP Investments is 1.35 times less risky than MP Materials. It trades about 0.04 of its potential returns per unit of risk. MP Materials Corp is currently generating about -0.01 per unit of risk. If you would invest  391.00  in GP Investments on October 7, 2024 and sell it today you would earn a total of  13.00  from holding GP Investments or generate 3.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.37%
Values	Daily Returns

GP Investments  vs.  MP Materials Corp

GP Investments

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in GP Investments are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong forward indicators, GP Investments is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 GP Investments and MP Materials

The main advantage of trading using opposite GP Investments and MP Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GP Investments 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 GP Investments 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.

Check out your portfolio center.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.