Correlation Between Eastman Chemical and Lundin Energy

Can any of the company-specific risk be diversified away by investing in both Eastman Chemical and Lundin Energy 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 Lundin Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Eastman Chemical and Lundin Energy AB, you can compare the effects of market volatilities on Eastman Chemical and Lundin Energy 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 Lundin Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eastman Chemical and Lundin Energy.

Diversification Opportunities for Eastman Chemical and Lundin Energy

0.16

Correlation Coefficient

Eastman Chemical  Lundin Energy

Average diversification

The 3 months correlation between Eastman and Lundin is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical and Lundin Energy AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lundin Energy AB 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 Lundin Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lundin Energy AB has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and Lundin Energy go up and down completely randomly.

Pair Corralation between Eastman Chemical and Lundin Energy

Assuming the 90 days horizon Eastman Chemical is expected to generate 0.59 times more return on investment than Lundin Energy. However, Eastman Chemical is 1.68 times less risky than Lundin Energy. It trades about -0.02 of its potential returns per unit of risk. Lundin Energy AB is currently generating about -0.16 per unit of risk. If you would invest  9,460  in Eastman Chemical on September 19, 2024 and sell it today you would lose (210.00) from holding Eastman Chemical or give up 2.22% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Eastman Chemical  vs.  Lundin Energy AB

Eastman Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eastman Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Eastman Chemical is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Lundin Energy AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lundin Energy AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Eastman Chemical and Lundin Energy

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

The idea behind Eastman Chemical and Lundin Energy AB 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 Transaction History module to view history of all your transactions and understand their impact on performance.