Correlation Between Eastman Chemical and China BlueChemical
Can any of the company-specific risk be diversified away by investing in both Eastman Chemical and China BlueChemical 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 China BlueChemical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Eastman Chemical and China BlueChemical, you can compare the effects of market volatilities on Eastman Chemical and China BlueChemical 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 China BlueChemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eastman Chemical and China BlueChemical.
Diversification Opportunities for Eastman Chemical and China BlueChemical
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Eastman and China is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical and China BlueChemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China BlueChemical 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 are associated (or correlated) with China BlueChemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China BlueChemical has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and China BlueChemical go up and down completely randomly.
Pair Corralation between Eastman Chemical and China BlueChemical
Assuming the 90 days horizon Eastman Chemical is expected to generate 1.52 times less return on investment than China BlueChemical. But when comparing it to its historical volatility, Eastman Chemical is 2.47 times less risky than China BlueChemical. It trades about 0.04 of its potential returns per unit of risk. China BlueChemical is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 21.00 in China BlueChemical on September 3, 2024 and sell it today you would earn a total of 3.00 from holding China BlueChemical or generate 14.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Eastman Chemical vs. China BlueChemical
Performance |
| Timeline |
| Eastman Chemical |
| China BlueChemical |
Eastman Chemical and China BlueChemical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Eastman Chemical and China BlueChemical
The main advantage of trading using opposite Eastman Chemical and China BlueChemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eastman Chemical position performs unexpectedly, China BlueChemical 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 BlueChemical will offset losses from the drop in China BlueChemical's long position.| Eastman Chemical vs. Vulcan Materials | Eastman Chemical vs. Broadwind | Eastman Chemical vs. Transportadora de Gas | Eastman Chemical vs. URBAN OUTFITTERS |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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