Correlation Between MP Materials and ReTo Eco

Can any of the company-specific risk be diversified away by investing in both MP Materials and ReTo Eco 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 ReTo Eco 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 ReTo Eco Solutions, you can compare the effects of market volatilities on MP Materials and ReTo Eco 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 ReTo Eco. Check out your portfolio center. Please also check ongoing floating volatility patterns of MP Materials and ReTo Eco.

Diversification Opportunities for MP Materials and ReTo Eco

-0.75

Correlation Coefficient

MP Materials  ReTo Eco

Pay attention - limited upside

The 3 months correlation between MP Materials and ReTo is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding MP Materials Corp and ReTo Eco Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ReTo Eco Solutions 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 ReTo Eco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ReTo Eco Solutions has no effect on the direction of MP Materials i.e., MP Materials and ReTo Eco go up and down completely randomly.

Pair Corralation between MP Materials and ReTo Eco

Allowing for the 90-day total investment horizon MP Materials Corp is expected to generate 0.3 times more return on investment than ReTo Eco. However, MP Materials Corp is 3.36 times less risky than ReTo Eco. It trades about -0.03 of its potential returns per unit of risk. ReTo Eco Solutions is currently generating about -0.24 per unit of risk. If you would invest  2,566  in MP Materials Corp on January 4, 2025 and sell it today you would lose (84.00) from holding MP Materials Corp or give up 3.27% of portfolio value over 90 days.

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

MP Materials Corp  vs.  ReTo Eco Solutions

MP Materials Corp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MP Materials Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, MP Materials reported solid returns over the last few months and may actually be approaching a breakup point.

ReTo Eco Solutions

Risk-Adjusted Performance

Very Weak

Over the last 90 days ReTo Eco Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in May 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with MP Materials and ReTo Eco

The main advantage of trading using opposite MP Materials and ReTo Eco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MP Materials position performs unexpectedly, ReTo Eco 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 ReTo Eco will offset losses from the drop in ReTo Eco's long position.

The idea behind MP Materials Corp and ReTo Eco Solutions 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.