Correlation Between MP Materials and Pilbara Minerals

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

Diversification Opportunities for MP Materials and Pilbara Minerals

0.04

Correlation Coefficient

MP Materials  Pilbara Minerals

Significant diversification

The 3 months correlation between MP Materials and Pilbara is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding MP Materials Corp and Pilbara Minerals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pilbara Minerals 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 Pilbara Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pilbara Minerals has no effect on the direction of MP Materials i.e., MP Materials and Pilbara Minerals go up and down completely randomly.

Pair Corralation between MP Materials and Pilbara Minerals

Allowing for the 90-day total investment horizon MP Materials Corp is expected to under-perform the Pilbara Minerals. In addition to that, MP Materials is 2.18 times more volatile than Pilbara Minerals Limited. It trades about -0.09 of its total potential returns per unit of risk. Pilbara Minerals Limited is currently generating about -0.14 per unit of volatility. If you would invest  147.00  in Pilbara Minerals Limited on October 6, 2024 and sell it today you would lose (8.00) from holding Pilbara Minerals Limited or give up 5.44% 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.  Pilbara Minerals Limited

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.

Pilbara Minerals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pilbara Minerals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental drivers remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with MP Materials and Pilbara Minerals

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

The idea behind MP Materials Corp and Pilbara Minerals Limited 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.