Correlation Between MP Materials and CVS Health

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

Diversification Opportunities for MP Materials and CVS Health

-0.05

Correlation Coefficient

MP Materials  CVS Health

Good diversification

The 3 months correlation between M2PM34 and CVS is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding MP Materials Corp and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health 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 CVS Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVS Health has no effect on the direction of MP Materials i.e., MP Materials and CVS Health go up and down completely randomly.

Pair Corralation between MP Materials and CVS Health

Assuming the 90 days trading horizon MP Materials Corp is expected to generate 1.35 times more return on investment than CVS Health. However, MP Materials is 1.35 times more volatile than CVS Health. It trades about 0.05 of its potential returns per unit of risk. CVS Health is currently generating about -0.03 per unit of risk. If you would invest  1,768  in MP Materials Corp on October 9, 2024 and sell it today you would earn a total of  711.00  from holding MP Materials Corp or generate 40.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.34%
Values	Daily Returns

MP Materials Corp  vs.  CVS Health

MP Materials Corp

Risk-Adjusted Performance

9 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MP Materials Corp are ranked lower than 9 (%) 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.

CVS Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS Health has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with MP Materials and CVS Health

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

The idea behind MP Materials Corp and CVS Health 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.