Correlation Between MP Materials and Lithium Americas

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

Diversification Opportunities for MP Materials and Lithium Americas

-0.41

Correlation Coefficient

MP Materials  Lithium Americas

Very good diversification

The 3 months correlation between MP Materials and Lithium is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding MP Materials Corp and Lithium Americas Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithium Americas 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 Lithium Americas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lithium Americas Corp has no effect on the direction of MP Materials i.e., MP Materials and Lithium Americas go up and down completely randomly.

Pair Corralation between MP Materials and Lithium Americas

Allowing for the 90-day total investment horizon MP Materials Corp is expected to generate 1.15 times more return on investment than Lithium Americas. However, MP Materials is 1.15 times more volatile than Lithium Americas Corp. It trades about 0.21 of its potential returns per unit of risk. Lithium Americas Corp is currently generating about -0.03 per unit of risk. If you would invest  1,598  in MP Materials Corp on December 30, 2024 and sell it today you would earn a total of  999.00  from holding MP Materials Corp or generate 62.52% return on investment over 90 days.

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

MP Materials Corp  vs.  Lithium Americas 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 16 (%) 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.

Lithium Americas Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lithium Americas Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with MP Materials and Lithium Americas

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

The idea behind MP Materials Corp and Lithium Americas 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.

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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.