Correlation Between MP Materials and Lithium Americas
Can any of the company-specific risk be diversified away by investing in both MP Materials and Lithium Americas 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 Lithium Americas 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 Lithium Americas Corp, you can compare the effects of market volatilities on MP Materials and Lithium Americas 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 Lithium Americas. Check out your portfolio center. Please also check ongoing floating volatility patterns of MP Materials and Lithium Americas.
Diversification Opportunities for MP Materials and Lithium Americas
0.18 | Correlation Coefficient |
Average diversification
The 3 months correlation between MP Materials and Lithium is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding MP Materials Corp and Lithium Americas Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithium Americas Corp 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 Lithium Americas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lithium Americas Corp has no effect on the direction of MP Materials i.e., MP Materials and Lithium Americas go up and down completely randomly.
Pair Corralation between MP Materials and Lithium Americas
Allowing for the 90-day total investment horizon MP Materials Corp is expected to generate 1.27 times more return on investment than Lithium Americas. However, MP Materials is 1.27 times more volatile than Lithium Americas Corp. It trades about -0.01 of its potential returns per unit of risk. Lithium Americas Corp is currently generating about -0.17 per unit of risk. If you would invest 2,311 in MP Materials Corp on November 3, 2024 and sell it today you would lose (115.00) from holding MP Materials Corp or give up 4.98% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
MP Materials Corp vs. Lithium Americas Corp
Performance |
| Timeline |
| MP Materials Corp |
| Lithium Americas Corp |
MP Materials and Lithium Americas Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MP Materials and Lithium Americas
The main advantage of trading using opposite MP Materials and Lithium Americas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MP Materials position performs unexpectedly, Lithium Americas 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 Lithium Americas will offset losses from the drop in Lithium Americas' long position.| MP Materials vs. Piedmont Lithium Ltd | MP Materials vs. Sigma Lithium Resources | MP Materials vs. Standard Lithium | MP Materials vs. Vale SA ADR |
| Lithium Americas vs. Sigma Lithium Resources | Lithium Americas vs. Standard Lithium | Lithium Americas vs. Sayona Mining Limited | Lithium Americas vs. MP Materials Corp |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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