Correlation Between Eastman Chemical and Linde Plc

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

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

Diversification Opportunities for Eastman Chemical and Linde Plc

0.75

Correlation Coefficient

Eastman Chemical  Linde Plc

Poor diversification

The 3 months correlation between Eastman and Linde is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical and Linde plc Ordinary in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Linde plc Ordinary 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 Linde Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Linde plc Ordinary has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and Linde Plc go up and down completely randomly.

Pair Corralation between Eastman Chemical and Linde Plc

Considering the 90-day investment horizon Eastman Chemical is expected to generate 1.49 times more return on investment than Linde Plc. However, Eastman Chemical is 1.49 times more volatile than Linde plc Ordinary. It trades about -0.03 of its potential returns per unit of risk. Linde plc Ordinary is currently generating about -0.1 per unit of risk. If you would invest  10,229  in Eastman Chemical on September 13, 2024 and sell it today you would lose (296.00) from holding Eastman Chemical or give up 2.89% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Eastman Chemical  vs.  Linde plc Ordinary

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. In spite of very healthy primary indicators, Eastman Chemical is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Linde plc Ordinary

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Linde plc Ordinary has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Linde Plc is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Eastman Chemical and Linde Plc

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

The idea behind Eastman Chemical and Linde plc Ordinary 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.