Correlation Between MP Materials and Core Lithium

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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 Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

MP Materials Corp  vs.  Core Lithium

 Performance 
       Timeline  
MP Materials Corp 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in MP Materials Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, MP Materials may actually be approaching a critical reversion point that can send shares even higher in February 2025.
Core Lithium 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Core Lithium has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Core Lithium is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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.
The idea behind MP Materials Corp and Core Lithium 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 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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