Correlation Between MP Materials and Standard Lithium

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

Diversification Opportunities for MP Materials and Standard Lithium

-0.53

Correlation Coefficient

MP Materials  Standard Lithium

Excellent diversification

The 3 months correlation between MP Materials and Standard is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding MP Materials Corp and Standard Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Standard 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 Standard Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Standard Lithium has no effect on the direction of MP Materials i.e., MP Materials and Standard Lithium go up and down completely randomly.

Pair Corralation between MP Materials and Standard Lithium

Allowing for the 90-day total investment horizon MP Materials Corp is expected to generate 1.01 times more return on investment than Standard Lithium. However, MP Materials is 1.01 times more volatile than Standard Lithium. It trades about 0.21 of its potential returns per unit of risk. Standard Lithium 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.  Standard Lithium

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.

Standard Lithium

Risk-Adjusted Performance

Very Weak

Over the last 90 days Standard Lithium has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's essential indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with MP Materials and Standard Lithium

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

The idea behind MP Materials Corp and Standard 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.