Correlation Between Rio Tinto and Huntsman Exploration

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

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

Diversification Opportunities for Rio Tinto and Huntsman Exploration

0.29

Correlation Coefficient

Rio Tinto  Huntsman Exploration

Modest diversification

The 3 months correlation between Rio and Huntsman is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Rio Tinto Group and Huntsman Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huntsman Exploration and Rio Tinto 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 Rio Tinto Group are associated (or correlated) with Huntsman Exploration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huntsman Exploration has no effect on the direction of Rio Tinto i.e., Rio Tinto and Huntsman Exploration go up and down completely randomly.

Pair Corralation between Rio Tinto and Huntsman Exploration

Assuming the 90 days horizon Rio Tinto is expected to generate 7.05 times less return on investment than Huntsman Exploration. But when comparing it to its historical volatility, Rio Tinto Group is 7.04 times less risky than Huntsman Exploration. It trades about 0.1 of its potential returns per unit of risk. Huntsman Exploration is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2.60  in Huntsman Exploration on December 29, 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 Together
Strength	Very Weak
Accuracy	83.87%
Values	Daily Returns

Rio Tinto Group  vs.  Huntsman Exploration

Rio Tinto Group

Risk-Adjusted Performance

OK

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

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.

Pair Trading with Rio Tinto and Huntsman Exploration

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

The idea behind Rio Tinto Group and Huntsman Exploration 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.