Correlation Between Dow and Huntsman
Can any of the company-specific risk be diversified away by investing in both Dow and Huntsman 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 Dow and Huntsman into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Inc and Huntsman, you can compare the effects of market volatilities on Dow and Huntsman 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 Dow with a short position of Huntsman. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow and Huntsman.
Diversification Opportunities for Dow and Huntsman
Very poor diversification
The 3 months correlation between Dow and Huntsman is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Dow Inc and Huntsman in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huntsman and Dow 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 Dow Inc are associated (or correlated) with Huntsman. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huntsman has no effect on the direction of Dow i.e., Dow and Huntsman go up and down completely randomly.
Pair Corralation between Dow and Huntsman
Considering the 90-day investment horizon Dow Inc is expected to generate 0.92 times more return on investment than Huntsman. However, Dow Inc is 1.08 times less risky than Huntsman. It trades about -0.26 of its potential returns per unit of risk. Huntsman is currently generating about -0.35 per unit of risk. If you would invest 5,011 in Dow Inc on August 28, 2024 and sell it today you would lose (424.00) from holding Dow Inc or give up 8.46% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Inc vs. Huntsman
Performance |
| Timeline |
| Dow Inc |
| Huntsman |
Dow and Huntsman Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dow and Huntsman
The main advantage of trading using opposite Dow and Huntsman positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow position performs unexpectedly, Huntsman 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 will offset losses from the drop in Huntsman's long position.The idea behind Dow Inc and Huntsman 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.| Huntsman vs. Valhi Inc | Huntsman vs. Lsb Industries | Huntsman vs. Westlake Chemical Partners | Huntsman vs. Braskem SA Class |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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