Correlation Between Huntsman Exploration and China Rare

Can any of the company-specific risk be diversified away by investing in both Huntsman Exploration and China Rare 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 Huntsman Exploration and China Rare into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Huntsman Exploration and China Rare Earth, you can compare the effects of market volatilities on Huntsman Exploration and China Rare 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 Huntsman Exploration with a short position of China Rare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Huntsman Exploration and China Rare.

Diversification Opportunities for Huntsman Exploration and China Rare

-0.28

Correlation Coefficient

Huntsman Exploration  China Rare

Very good diversification

The 3 months correlation between Huntsman and China is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Huntsman Exploration and China Rare Earth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Rare Earth and Huntsman Exploration 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 Huntsman Exploration are associated (or correlated) with China Rare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Rare Earth has no effect on the direction of Huntsman Exploration i.e., Huntsman Exploration and China Rare go up and down completely randomly.

Pair Corralation between Huntsman Exploration and China Rare

Assuming the 90 days horizon Huntsman Exploration is expected to generate 1.06 times more return on investment than China Rare. However, Huntsman Exploration is 1.06 times more volatile than China Rare Earth. It trades about 0.1 of its potential returns per unit of risk. China Rare Earth is currently generating about 0.07 per unit of risk. If you would invest  2.60  in Huntsman Exploration on December 30, 2024 and sell it today you would earn a total of  1.20  from holding Huntsman Exploration or generate 46.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Huntsman Exploration  vs.  China Rare Earth

Huntsman Exploration

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Huntsman Exploration are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Huntsman Exploration reported solid returns over the last few months and may actually be approaching a breakup point.

China Rare Earth

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Rare Earth are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Rare reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Huntsman Exploration and China Rare

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

The idea behind Huntsman Exploration and China Rare Earth 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.