Correlation Between IMPERIAL TOBACCO and Eastman Chemical
Can any of the company-specific risk be diversified away by investing in both IMPERIAL TOBACCO 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 IMPERIAL TOBACCO and Eastman Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between IMPERIAL TOBACCO and Eastman Chemical, you can compare the effects of market volatilities on IMPERIAL TOBACCO 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 IMPERIAL TOBACCO with a short position of Eastman Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of IMPERIAL TOBACCO and Eastman Chemical.
Diversification Opportunities for IMPERIAL TOBACCO and Eastman Chemical
0.27 | Correlation Coefficient |
Modest diversification
The 3 months correlation between IMPERIAL and Eastman is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding IMPERIAL TOBACCO and Eastman Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastman Chemical and IMPERIAL TOBACCO 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 IMPERIAL TOBACCO 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 IMPERIAL TOBACCO i.e., IMPERIAL TOBACCO and Eastman Chemical go up and down completely randomly.
Pair Corralation between IMPERIAL TOBACCO and Eastman Chemical
Assuming the 90 days trading horizon IMPERIAL TOBACCO is expected to generate 0.73 times more return on investment than Eastman Chemical. However, IMPERIAL TOBACCO is 1.37 times less risky than Eastman Chemical. It trades about 0.07 of its potential returns per unit of risk. Eastman Chemical is currently generating about 0.05 per unit of risk. If you would invest 2,127 in IMPERIAL TOBACCO on August 29, 2024 and sell it today you would earn a total of 1,024 from holding IMPERIAL TOBACCO or generate 48.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
IMPERIAL TOBACCO vs. Eastman Chemical
Performance |
| Timeline |
| IMPERIAL TOBACCO |
| Eastman Chemical |
IMPERIAL TOBACCO and Eastman Chemical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IMPERIAL TOBACCO and Eastman Chemical
The main advantage of trading using opposite IMPERIAL TOBACCO and Eastman Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IMPERIAL TOBACCO 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.| IMPERIAL TOBACCO vs. Apple Inc | IMPERIAL TOBACCO vs. Apple Inc | IMPERIAL TOBACCO vs. Superior Plus Corp | IMPERIAL TOBACCO vs. SIVERS SEMICONDUCTORS AB |
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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 Global Correlations module to find global opportunities by holding instruments from different markets.
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