Correlation Between MP Materials and Vale SA

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

Diversification Opportunities for MP Materials and Vale SA

0.73

Correlation Coefficient

MP Materials  Vale SA

Poor diversification

The 3 months correlation between MP Materials and Vale is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding MP Materials Corp and Vale SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA ADR 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 Vale SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vale SA ADR has no effect on the direction of MP Materials i.e., MP Materials and Vale SA go up and down completely randomly.

Pair Corralation between MP Materials and Vale SA

Allowing for the 90-day total investment horizon MP Materials Corp is expected to generate 2.69 times more return on investment than Vale SA. However, MP Materials is 2.69 times more volatile than Vale SA ADR. It trades about 0.21 of its potential returns per unit of risk. Vale SA ADR is currently generating about 0.18 per unit of risk. If you would invest  1,598  in MP Materials Corp on December 29, 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 Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

MP Materials Corp  vs.  Vale SA ADR

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.

Vale SA ADR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vale SA ADR are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak essential indicators, Vale SA exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MP Materials and Vale SA

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

The idea behind MP Materials Corp and Vale SA ADR 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.