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

-0.61

Correlation Coefficient

MP Materials  Compass Minerals

Excellent diversification

The 3 months correlation between MP Materials and Compass is -0.61. 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 Corp is expected to under-perform the Compass Minerals. In addition to that, MP Materials is 1.23 times more volatile than Compass Minerals International. It trades about -0.01 of its total potential returns per unit of risk. Compass Minerals International is currently generating about 0.2 per unit of volatility. If you would invest  1,189  in Compass Minerals International on February 20, 2025 and sell it today you would earn a total of  777.00  from holding Compass Minerals International or generate 65.35% return on investment over 90 days.

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

MP Materials Corp  vs.  Compass Minerals International

MP Materials Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days MP Materials Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, MP Materials is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Compass Minerals Int

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Compass Minerals International are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady primary indicators, Compass Minerals reported solid returns over the last few months and may actually be approaching a breakup point.

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.

The idea behind MP Materials Corp and Compass Minerals International 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.