Correlation Between Eastman Chemical and Celanese
Can any of the company-specific risk be diversified away by investing in both Eastman Chemical and Celanese 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 Celanese into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Eastman Chemical and Celanese, you can compare the effects of market volatilities on Eastman Chemical and Celanese 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 Celanese. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eastman Chemical and Celanese.
Diversification Opportunities for Eastman Chemical and Celanese
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Eastman and Celanese is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical and Celanese in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Celanese 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 Celanese. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Celanese has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and Celanese go up and down completely randomly.
Pair Corralation between Eastman Chemical and Celanese
Considering the 90-day investment horizon Eastman Chemical is expected to generate 0.82 times more return on investment than Celanese. However, Eastman Chemical is 1.21 times less risky than Celanese. It trades about 0.17 of its potential returns per unit of risk. Celanese is currently generating about 0.08 per unit of risk. If you would invest 8,418 in Eastman Chemical on January 26, 2024 and sell it today you would earn a total of 1,218 from holding Eastman Chemical or generate 14.47% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Eastman Chemical vs. Celanese
Performance |
Timeline |
Eastman Chemical |
Celanese |
Eastman Chemical and Celanese Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Eastman Chemical and Celanese
The main advantage of trading using opposite Eastman Chemical and Celanese positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eastman Chemical position performs unexpectedly, Celanese 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 Celanese will offset losses from the drop in Celanese's long position.The idea behind Eastman Chemical and Celanese 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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