Correlation Between MP Materials and Kimberly Clark

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

Diversification Opportunities for MP Materials and Kimberly Clark

0.02

Correlation Coefficient

MP Materials  Kimberly Clark

Significant diversification

The 3 months correlation between M2PM34 and Kimberly is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding MP Materials Corp and Kimberly Clark in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kimberly Clark 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 Kimberly Clark. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kimberly Clark has no effect on the direction of MP Materials i.e., MP Materials and Kimberly Clark go up and down completely randomly.

Pair Corralation between MP Materials and Kimberly Clark

Assuming the 90 days trading horizon MP Materials Corp is expected to generate 2.83 times more return on investment than Kimberly Clark. However, MP Materials is 2.83 times more volatile than Kimberly Clark. It trades about 0.17 of its potential returns per unit of risk. Kimberly Clark is currently generating about -0.02 per unit of risk. If you would invest  2,028  in MP Materials Corp on December 25, 2024 and sell it today you would earn a total of  1,032  from holding MP Materials Corp or generate 50.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

MP Materials Corp  vs.  Kimberly Clark

MP Materials Corp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MP Materials Corp are ranked lower than 13 (%) 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.

Kimberly Clark

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kimberly Clark has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Kimberly Clark is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with MP Materials and Kimberly Clark

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

The idea behind MP Materials Corp and Kimberly Clark 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.