Correlation Between Eastman Chemical and NewMarket

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

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

Diversification Opportunities for Eastman Chemical and NewMarket

-0.26

Correlation Coefficient

Eastman Chemical  NewMarket

Very good diversification

The 3 months correlation between Eastman and NewMarket is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical and NewMarket in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NewMarket 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 NewMarket. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NewMarket has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and NewMarket go up and down completely randomly.

Pair Corralation between Eastman Chemical and NewMarket

Considering the 90-day investment horizon Eastman Chemical is expected to generate 1.03 times more return on investment than NewMarket. However, Eastman Chemical is 1.03 times more volatile than NewMarket. It trades about -0.03 of its potential returns per unit of risk. NewMarket is currently generating about -0.03 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 Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Eastman Chemical  vs.  NewMarket

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.

NewMarket

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NewMarket has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, NewMarket is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Eastman Chemical and NewMarket

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

The idea behind Eastman Chemical and NewMarket 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.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.