Correlation Between Eastern and Kennametal
Can any of the company-specific risk be diversified away by investing in both Eastern and Kennametal 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 Eastern and Kennametal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Eastern Co and Kennametal, you can compare the effects of market volatilities on Eastern and Kennametal 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 Eastern with a short position of Kennametal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eastern and Kennametal.
Diversification Opportunities for Eastern and Kennametal
-0.6 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Eastern and Kennametal is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Co and Kennametal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kennametal and Eastern 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 Eastern Co are associated (or correlated) with Kennametal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kennametal has no effect on the direction of Eastern i.e., Eastern and Kennametal go up and down completely randomly.
Pair Corralation between Eastern and Kennametal
Considering the 90-day investment horizon Eastern Co is expected to generate 1.45 times more return on investment than Kennametal. However, Eastern is 1.45 times more volatile than Kennametal. It trades about 0.04 of its potential returns per unit of risk. Kennametal is currently generating about 0.05 per unit of risk. If you would invest 2,466 in Eastern Co on August 27, 2024 and sell it today you would earn a total of 388.00 from holding Eastern Co or generate 15.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Eastern Co vs. Kennametal
Performance |
| Timeline |
| Eastern |
| Kennametal |
Eastern and Kennametal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Eastern and Kennametal
The main advantage of trading using opposite Eastern and Kennametal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eastern position performs unexpectedly, Kennametal 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 Kennametal will offset losses from the drop in Kennametal's long position.The idea behind Eastern Co and Kennametal 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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