Correlation Between MP Materials and Core Lithium
Can any of the company-specific risk be diversified away by investing in both MP Materials and Core Lithium 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 Core Lithium 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 Core Lithium, you can compare the effects of market volatilities on MP Materials and Core Lithium 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 Core Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of MP Materials and Core Lithium.
Diversification Opportunities for MP Materials and Core Lithium
0.06 | Correlation Coefficient |
Significant diversification
The 3 months correlation between MP Materials and Core is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding MP Materials Corp and Core Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Core Lithium 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 Core Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Core Lithium has no effect on the direction of MP Materials i.e., MP Materials and Core Lithium go up and down completely randomly.
Pair Corralation between MP Materials and Core Lithium
Allowing for the 90-day total investment horizon MP Materials Corp is expected to under-perform the Core Lithium. But the stock apears to be less risky and, when comparing its historical volatility, MP Materials Corp is 3.44 times less risky than Core Lithium. The stock trades about -0.09 of its potential returns per unit of risk. The Core Lithium is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 5.38 in Core Lithium on October 6, 2024 and sell it today you would lose (0.38) from holding Core Lithium or give up 7.06% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
MP Materials Corp vs. Core Lithium
Performance |
Timeline |
MP Materials Corp |
Core Lithium |
MP Materials and Core Lithium Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with MP Materials and Core Lithium
The main advantage of trading using opposite MP Materials and Core Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MP Materials position performs unexpectedly, Core Lithium 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 Core Lithium will offset losses from the drop in Core Lithium's long position.MP Materials vs. Piedmont Lithium Ltd | MP Materials vs. Sigma Lithium Resources | MP Materials vs. Standard Lithium | MP Materials vs. Vale SA ADR |
Core Lithium vs. Macmahon Holdings Limited | Core Lithium vs. Prime Meridian Resources | Core Lithium vs. International Lithium Corp | Core Lithium vs. Hudson Resources |
Check out your portfolio center.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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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