Correlation Between Eastman Chemical and Baltic Panamax

Can any of the company-specific risk be diversified away by investing in both Eastman Chemical and Baltic Panamax 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 Baltic Panamax 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 Baltic Panamax, you can compare the effects of market volatilities on Eastman Chemical and Baltic Panamax 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 Baltic Panamax. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eastman Chemical and Baltic Panamax.

Diversification Opportunities for Eastman Chemical and Baltic Panamax

0.87

Correlation Coefficient

Eastman Chemical  Baltic Panamax

Very poor diversification

The 3 months correlation between Eastman and Baltic is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical Co and Baltic Panamax in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baltic Panamax 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 Baltic Panamax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baltic Panamax has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and Baltic Panamax go up and down completely randomly.

Pair Corralation between Eastman Chemical and Baltic Panamax

Assuming the 90 days trading horizon Eastman Chemical Co is expected to generate 0.72 times more return on investment than Baltic Panamax. However, Eastman Chemical Co is 1.38 times less risky than Baltic Panamax. It trades about -0.1 of its potential returns per unit of risk. Baltic Panamax is currently generating about -0.29 per unit of risk. If you would invest  10,645  in Eastman Chemical Co on September 18, 2024 and sell it today you would lose (924.00) from holding Eastman Chemical Co or give up 8.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	96.92%
Values	Daily Returns

Eastman Chemical Co  vs.  Baltic Panamax

Pair Trading with Eastman Chemical and Baltic Panamax

The main advantage of trading using opposite Eastman Chemical and Baltic Panamax positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eastman Chemical position performs unexpectedly, Baltic Panamax 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 Baltic Panamax will offset losses from the drop in Baltic Panamax's long position.

The idea behind Eastman Chemical Co and Baltic Panamax 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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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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.