Correlation Between Eastman Chemical and Air Products

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

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

Diversification Opportunities for Eastman Chemical and Air Products

-0.12

Correlation Coefficient

Eastman Chemical  Air Products

Good diversification

The 3 months correlation between Eastman and Air is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical Co and Air Products Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Products Chemicals 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 Co are associated (or correlated) with Air Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Products Chemicals has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and Air Products go up and down completely randomly.

Pair Corralation between Eastman Chemical and Air Products

Assuming the 90 days trading horizon Eastman Chemical is expected to generate 1.82 times less return on investment than Air Products. But when comparing it to its historical volatility, Eastman Chemical Co is 2.95 times less risky than Air Products. It trades about 0.04 of its potential returns per unit of risk. Air Products Chemicals is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  29,617  in Air Products Chemicals on September 14, 2024 and sell it today you would earn a total of  1,454  from holding Air Products Chemicals or generate 4.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	89.72%
Values	Daily Returns

Eastman Chemical Co  vs.  Air Products Chemicals

Eastman Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eastman Chemical Co has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Air Products Chemicals

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Air Products Chemicals are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Air Products may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Eastman Chemical and Air Products

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

The idea behind Eastman Chemical Co and Air Products Chemicals 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .