Correlation Between Pilbara Minerals and MP Materials

Can any of the company-specific risk be diversified away by investing in both Pilbara Minerals and MP Materials 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 Pilbara Minerals and MP Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Pilbara Minerals Limited and MP Materials Corp, you can compare the effects of market volatilities on Pilbara Minerals and MP Materials 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 Pilbara Minerals with a short position of MP Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pilbara Minerals and MP Materials.

Diversification Opportunities for Pilbara Minerals and MP Materials

0.04

Correlation Coefficient

Pilbara Minerals  MP Materials

Significant diversification

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

Pair Corralation between Pilbara Minerals and MP Materials

Assuming the 90 days horizon Pilbara Minerals Limited is expected to under-perform the MP Materials. But the pink sheet apears to be less risky and, when comparing its historical volatility, Pilbara Minerals Limited is 1.13 times less risky than MP Materials. The pink sheet trades about -0.18 of its potential returns per unit of risk. The MP Materials Corp is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,784  in MP Materials Corp on October 6, 2024 and sell it today you would earn a total of  36.00  from holding MP Materials Corp or generate 2.02% return on investment over 90 days.

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

Pilbara Minerals Limited  vs.  MP Materials Corp

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.

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.

Pair Trading with Pilbara Minerals and MP Materials

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

The idea behind Pilbara Minerals Limited and MP Materials Corp 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..