Correlation Between Eastman Chemical and Renesas Electronics

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

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

Diversification Opportunities for Eastman Chemical and Renesas Electronics

-0.4

Correlation Coefficient

Eastman Chemical  Renesas Electronics

Very good diversification

The 3 months correlation between Eastman and Renesas is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical and Renesas Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Renesas Electronics 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 Renesas Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Renesas Electronics has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and Renesas Electronics go up and down completely randomly.

Pair Corralation between Eastman Chemical and Renesas Electronics

Assuming the 90 days horizon Eastman Chemical is expected to generate 0.53 times more return on investment than Renesas Electronics. However, Eastman Chemical is 1.87 times less risky than Renesas Electronics. It trades about 0.09 of its potential returns per unit of risk. Renesas Electronics is currently generating about -0.1 per unit of risk. If you would invest  9,117  in Eastman Chemical on September 3, 2024 and sell it today you would earn a total of  755.00  from holding Eastman Chemical or generate 8.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Eastman Chemical  vs.  Renesas Electronics

Eastman Chemical

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eastman Chemical are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Eastman Chemical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Renesas Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Renesas Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile 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 Renesas Electronics

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

The idea behind Eastman Chemical and Renesas Electronics 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 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.