Correlation Between MP Materials and Largo Resources
Can any of the company-specific risk be diversified away by investing in both MP Materials and Largo Resources 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 Largo Resources 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 Largo Resources, you can compare the effects of market volatilities on MP Materials and Largo Resources 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 Largo Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of MP Materials and Largo Resources.
Diversification Opportunities for MP Materials and Largo Resources
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between MP Materials and Largo is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding MP Materials Corp and Largo Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Largo Resources 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 Largo Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Largo Resources has no effect on the direction of MP Materials i.e., MP Materials and Largo Resources go up and down completely randomly.
Pair Corralation between MP Materials and Largo Resources
Allowing for the 90-day total investment horizon MP Materials Corp is expected to generate 0.82 times more return on investment than Largo Resources. However, MP Materials Corp is 1.22 times less risky than Largo Resources. It trades about 0.04 of its potential returns per unit of risk. Largo Resources is currently generating about 0.02 per unit of risk. If you would invest 1,608 in MP Materials Corp on August 25, 2024 and sell it today you would earn a total of 356.00 from holding MP Materials Corp or generate 22.14% 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. Largo Resources
Performance |
| Timeline |
| MP Materials Corp |
| Largo Resources |
MP Materials and Largo Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MP Materials and Largo Resources
The main advantage of trading using opposite MP Materials and Largo Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MP Materials position performs unexpectedly, Largo Resources 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 Largo Resources will offset losses from the drop in Largo Resources' 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 |
| Largo Resources vs. Skeena Resources | Largo Resources vs. Materion | Largo Resources vs. Compass Minerals International | Largo Resources vs. IperionX Limited American |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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