Correlation Between MP Materials and Critical Metals

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

Diversification Opportunities for MP Materials and Critical Metals

-0.65

Correlation Coefficient

MP Materials  Critical Metals

Excellent diversification

The 3 months correlation between MP Materials and Critical is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding MP Materials Corp and Critical Metals Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Critical Metals Corp 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 Critical Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Critical Metals Corp has no effect on the direction of MP Materials i.e., MP Materials and Critical Metals go up and down completely randomly.

Pair Corralation between MP Materials and Critical Metals

Allowing for the 90-day total investment horizon MP Materials Corp is expected to generate 0.39 times more return on investment than Critical Metals. However, MP Materials Corp is 2.55 times less risky than Critical Metals. It trades about 0.2 of its potential returns per unit of risk. Critical Metals Corp is currently generating about -0.17 per unit of risk. If you would invest  1,629  in MP Materials Corp on December 22, 2024 and sell it today you would earn a total of  961.00  from holding MP Materials Corp or generate 58.99% return on investment over 90 days.

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

MP Materials Corp  vs.  Critical Metals Corp

MP Materials Corp

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MP Materials Corp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, MP Materials reported solid returns over the last few months and may actually be approaching a breakup point.

Critical Metals Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Critical Metals Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's primary indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with MP Materials and Critical Metals

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

The idea behind MP Materials Corp and Critical Metals 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.

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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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.