Correlation Between MP Materials and Lake Resources

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

Diversification Opportunities for MP Materials and Lake Resources

0.09

Correlation Coefficient

MP Materials  Lake Resources

Significant diversification

The 3 months correlation between MP Materials and Lake is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding MP Materials Corp and Lake Resources NL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lake Resources NL 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 Lake Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lake Resources NL has no effect on the direction of MP Materials i.e., MP Materials and Lake Resources go up and down completely randomly.

Pair Corralation between MP Materials and Lake Resources

Allowing for the 90-day total investment horizon MP Materials is expected to generate 3.9 times less return on investment than Lake Resources. But when comparing it to its historical volatility, MP Materials Corp is 3.01 times less risky than Lake Resources. It trades about 0.03 of its potential returns per unit of risk. Lake Resources NL is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  3.00  in Lake Resources NL on October 6, 2024 and sell it today you would lose (0.24) from holding Lake Resources NL or give up 8.0% 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.  Lake Resources NL

MP Materials Corp

Risk-Adjusted Performance

2 of 100

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.

Lake Resources NL

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lake Resources NL are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent forward-looking signals, Lake Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MP Materials and Lake Resources

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

The idea behind MP Materials Corp and Lake Resources NL 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.