Correlation Between China BlueChemical and Eastman Chemical
Can any of the company-specific risk be diversified away by investing in both China BlueChemical and Eastman Chemical 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 China BlueChemical and Eastman Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China BlueChemical and Eastman Chemical, you can compare the effects of market volatilities on China BlueChemical and Eastman Chemical 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 China BlueChemical with a short position of Eastman Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of China BlueChemical and Eastman Chemical.
Diversification Opportunities for China BlueChemical and Eastman Chemical
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between China and Eastman is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding China BlueChemical and Eastman Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastman Chemical and China BlueChemical 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 China BlueChemical are associated (or correlated) with Eastman Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastman Chemical has no effect on the direction of China BlueChemical i.e., China BlueChemical and Eastman Chemical go up and down completely randomly.
Pair Corralation between China BlueChemical and Eastman Chemical
Assuming the 90 days horizon China BlueChemical is expected to generate 2.47 times more return on investment than Eastman Chemical. However, China BlueChemical is 2.47 times more volatile than Eastman Chemical. It trades about 0.03 of its potential returns per unit of risk. Eastman Chemical is currently generating about 0.04 per unit of risk. 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 |
China BlueChemical vs. Eastman Chemical
Performance |
| Timeline |
| China BlueChemical |
| Eastman Chemical |
China BlueChemical and Eastman Chemical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China BlueChemical and Eastman Chemical
The main advantage of trading using opposite China BlueChemical and Eastman Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China BlueChemical position performs unexpectedly, Eastman Chemical 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 Eastman Chemical will offset losses from the drop in Eastman Chemical's long position.The idea behind China BlueChemical and Eastman Chemical 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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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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