Correlation Between MP Materials and Check Point

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

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

Diversification Opportunities for MP Materials and Check Point

0.29

Correlation Coefficient

MP Materials  Check Point

Modest diversification

The 3 months correlation between M2PM34 and Check is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding MP Materials Corp and Check Point Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Check Point Software and MP Materials 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 MP Materials Corp are associated (or correlated) with Check Point. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Check Point Software has no effect on the direction of MP Materials i.e., MP Materials and Check Point go up and down completely randomly.

Pair Corralation between MP Materials and Check Point

Assuming the 90 days trading horizon MP Materials Corp is expected to generate 2.24 times more return on investment than Check Point. However, MP Materials is 2.24 times more volatile than Check Point Software. It trades about 0.11 of its potential returns per unit of risk. Check Point Software is currently generating about 0.2 per unit of risk. If you would invest  2,016  in MP Materials Corp on October 25, 2024 and sell it today you would earn a total of  579.00  from holding MP Materials Corp or generate 28.72% return on investment over 90 days.

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

MP Materials Corp  vs.  Check Point Software

MP Materials Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MP Materials Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, MP Materials sustained solid returns over the last few months and may actually be approaching a breakup point.

Check Point Software

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Check Point Software are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, Check Point sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MP Materials and Check Point

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

The idea behind MP Materials Corp and Check Point Software 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.