Correlation Between Toyota and Eastman Chemical

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

By analyzing existing cross correlation between Toyota Motor Corp and Eastman Chemical Co, you can compare the effects of market volatilities on Toyota and Eastman Chemical 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 Toyota with a short position of Eastman Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toyota and Eastman Chemical.

Diversification Opportunities for Toyota and Eastman Chemical

-0.09

Correlation Coefficient

Toyota  Eastman Chemical

Good diversification

The 3 months correlation between Toyota and Eastman is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp and Eastman Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastman Chemical and Toyota 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 Toyota Motor Corp are associated (or correlated) with Eastman Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastman Chemical has no effect on the direction of Toyota i.e., Toyota and Eastman Chemical go up and down completely randomly.

Pair Corralation between Toyota and Eastman Chemical

Assuming the 90 days trading horizon Toyota Motor Corp is expected to generate 1.23 times more return on investment than Eastman Chemical. However, Toyota is 1.23 times more volatile than Eastman Chemical Co. It trades about 0.08 of its potential returns per unit of risk. Eastman Chemical Co is currently generating about 0.02 per unit of risk. If you would invest  248,535  in Toyota Motor Corp on September 12, 2024 and sell it today you would earn a total of  19,415  from holding Toyota Motor Corp or generate 7.81% return on investment over 90 days.

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

Toyota Motor Corp  vs.  Eastman Chemical Co

Toyota Motor Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Toyota may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Eastman Chemical

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Eastman Chemical Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Eastman Chemical is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Toyota and Eastman Chemical

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

The idea behind Toyota Motor Corp and Eastman Chemical Co 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.