Correlation Between Eastman Chemical and LPKF Laser

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Can any of the company-specific risk be diversified away by investing in both Eastman Chemical and LPKF Laser 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 Eastman Chemical and LPKF Laser into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Eastman Chemical Co and LPKF Laser Electronics, you can compare the effects of market volatilities on Eastman Chemical and LPKF Laser 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 Eastman Chemical with a short position of LPKF Laser. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eastman Chemical and LPKF Laser.

Diversification Opportunities for Eastman Chemical and LPKF Laser

0.72
  Correlation Coefficient

Poor diversification

The 3 months correlation between Eastman and LPKF is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical Co and LPKF Laser Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LPKF Laser Electronics and Eastman Chemical 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 Eastman Chemical Co are associated (or correlated) with LPKF Laser. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LPKF Laser Electronics has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and LPKF Laser go up and down completely randomly.

Pair Corralation between Eastman Chemical and LPKF Laser

Assuming the 90 days trading horizon Eastman Chemical Co is expected to generate 1.16 times more return on investment than LPKF Laser. However, Eastman Chemical is 1.16 times more volatile than LPKF Laser Electronics. It trades about -0.1 of its potential returns per unit of risk. LPKF Laser Electronics is currently generating about -0.22 per unit of risk. If you would invest  10,269  in Eastman Chemical Co on September 12, 2024 and sell it today you would lose (293.00) from holding Eastman Chemical Co or give up 2.85% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy95.45%
ValuesDaily Returns

Eastman Chemical Co  vs.  LPKF Laser Electronics

 Performance 
       Timeline  
Eastman Chemical 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Eastman Chemical Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Eastman Chemical is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.
LPKF Laser Electronics 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Weak
Over the last 90 days LPKF Laser Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, LPKF Laser is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Eastman Chemical and LPKF Laser Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Eastman Chemical and LPKF Laser

The main advantage of trading using opposite Eastman Chemical and LPKF Laser positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eastman Chemical position performs unexpectedly, LPKF Laser 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 LPKF Laser will offset losses from the drop in LPKF Laser's long position.
The idea behind Eastman Chemical Co and LPKF Laser Electronics 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.
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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.

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