Correlation Between MP Materials and Compass Minerals
Can any of the company-specific risk be diversified away by investing in both MP Materials and Compass Minerals 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 Compass Minerals 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 Compass Minerals International, you can compare the effects of market volatilities on MP Materials and Compass Minerals 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 Compass Minerals. Check out your portfolio center. Please also check ongoing floating volatility patterns of MP Materials and Compass Minerals.
Diversification Opportunities for MP Materials and Compass Minerals
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between MP Materials and Compass is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding MP Materials Corp and Compass Minerals International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass Minerals Int 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 Compass Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compass Minerals Int has no effect on the direction of MP Materials i.e., MP Materials and Compass Minerals go up and down completely randomly.
Pair Corralation between MP Materials and Compass Minerals
Allowing for the 90-day total investment horizon MP Materials is expected to generate 1.04 times less return on investment than Compass Minerals. But when comparing it to its historical volatility, MP Materials Corp is 1.81 times less risky than Compass Minerals. It trades about 0.17 of its potential returns per unit of risk. Compass Minerals International is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 1,385 in Compass Minerals International on August 28, 2024 and sell it today you would earn a total of 122.00 from holding Compass Minerals International or generate 8.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
MP Materials Corp vs. Compass Minerals International
Performance |
| Timeline |
| MP Materials Corp |
| Compass Minerals Int |
MP Materials and Compass Minerals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MP Materials and Compass Minerals
The main advantage of trading using opposite MP Materials and Compass Minerals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MP Materials position performs unexpectedly, Compass Minerals 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 Compass Minerals will offset losses from the drop in Compass Minerals' long position.| MP Materials vs. Vale SA ADR | MP Materials vs. Teck Resources Ltd | MP Materials vs. BHP Group Limited | MP Materials vs. Glencore PLC ADR |
| Compass Minerals vs. Vale SA ADR | Compass Minerals vs. Teck Resources Ltd | Compass Minerals vs. BHP Group Limited | Compass Minerals vs. Glencore PLC ADR |
Check out your portfolio center.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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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