Correlation Between Metalrgica Riosulense and MP Materials

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

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

Diversification Opportunities for Metalrgica Riosulense and MP Materials

-0.57

Correlation Coefficient

Metalrgica Riosulense  MP Materials

Excellent diversification

The 3 months correlation between Metalrgica and M2PM34 is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Metalrgica Riosulense SA 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 Metalrgica Riosulense 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 Metalrgica Riosulense SA 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 Metalrgica Riosulense i.e., Metalrgica Riosulense and MP Materials go up and down completely randomly.

Pair Corralation between Metalrgica Riosulense and MP Materials

Assuming the 90 days trading horizon Metalrgica Riosulense SA is expected to under-perform the MP Materials. But the preferred stock apears to be less risky and, when comparing its historical volatility, Metalrgica Riosulense SA is 2.54 times less risky than MP Materials. The preferred stock trades about -0.11 of its potential returns per unit of risk. The MP Materials Corp is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  2,106  in MP Materials Corp on October 7, 2024 and sell it today you would lose (128.00) from holding MP Materials Corp or give up 6.08% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	97.37%
Values	Daily Returns

Metalrgica Riosulense SA  vs.  MP Materials Corp

Metalrgica Riosulense

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metalrgica Riosulense SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Preferred Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

MP Materials Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MP Materials Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, MP Materials may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Metalrgica Riosulense and MP Materials

The main advantage of trading using opposite Metalrgica Riosulense and MP Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Metalrgica Riosulense 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 Metalrgica Riosulense SA 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.