Correlation Between MP Materials and Trilogy Metals

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

Diversification Opportunities for MP Materials and Trilogy Metals

0.62

Correlation Coefficient

MP Materials  Trilogy Metals

Poor diversification

The 3 months correlation between MP Materials and Trilogy is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding MP Materials Corp and Trilogy Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trilogy Metals 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 Trilogy Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trilogy Metals has no effect on the direction of MP Materials i.e., MP Materials and Trilogy Metals go up and down completely randomly.

Pair Corralation between MP Materials and Trilogy Metals

Allowing for the 90-day total investment horizon MP Materials is expected to generate 1.67 times less return on investment than Trilogy Metals. But when comparing it to its historical volatility, MP Materials Corp is 1.92 times less risky than Trilogy Metals. It trades about 0.16 of its potential returns per unit of risk. Trilogy Metals is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  124.00  in Trilogy Metals on December 1, 2024 and sell it today you would earn a total of  19.00  from holding Trilogy Metals or generate 15.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

MP Materials Corp  vs.  Trilogy Metals

MP Materials Corp

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MP Materials Corp are ranked lower than 6 (%) 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.

Trilogy Metals

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Trilogy Metals are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak primary indicators, Trilogy Metals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MP Materials and Trilogy Metals

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

The idea behind MP Materials Corp and Trilogy Metals 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.