Correlation Between MP Materials and Morgan Stanley

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

Diversification Opportunities for MP Materials and Morgan Stanley

0.66

Correlation Coefficient

MP Materials  Morgan Stanley

Poor diversification

The 3 months correlation between M2PM34 and Morgan is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding MP Materials Corp and Morgan Stanley in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morgan Stanley 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 Morgan Stanley. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Morgan Stanley has no effect on the direction of MP Materials i.e., MP Materials and Morgan Stanley go up and down completely randomly.

Pair Corralation between MP Materials and Morgan Stanley

Assuming the 90 days trading horizon MP Materials Corp is expected to generate 1.95 times more return on investment than Morgan Stanley. However, MP Materials is 1.95 times more volatile than Morgan Stanley. It trades about 0.11 of its potential returns per unit of risk. Morgan Stanley is currently generating about 0.17 per unit of risk. If you would invest  1,922  in MP Materials Corp on October 10, 2024 and sell it today you would earn a total of  557.00  from holding MP Materials Corp or generate 28.98% return on investment over 90 days.

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

MP Materials Corp  vs.  Morgan Stanley

MP Materials Corp

Risk-Adjusted Performance

8 of 100

Insignificant

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.

Morgan Stanley

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Morgan Stanley are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Morgan Stanley sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MP Materials and Morgan Stanley

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

The idea behind MP Materials Corp and Morgan Stanley 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.