Correlation Between BASF SE and Eastman Chemical

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

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

Diversification Opportunities for BASF SE and Eastman Chemical

0.44

Correlation Coefficient

BASF SE  Eastman Chemical

Very weak diversification

The 3 months correlation between BASF and Eastman is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding BASF SE and Eastman Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastman Chemical and BASF SE 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 BASF SE 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 BASF SE i.e., BASF SE and Eastman Chemical go up and down completely randomly.

Pair Corralation between BASF SE and Eastman Chemical

Assuming the 90 days trading horizon BASF SE is expected to under-perform the Eastman Chemical. In addition to that, BASF SE is 1.26 times more volatile than Eastman Chemical. It trades about -0.03 of its total potential returns per unit of risk. Eastman Chemical is currently generating about 0.09 per unit of volatility. If you would invest  9,117  in Eastman Chemical on September 3, 2024 and sell it today you would earn a total of  755.00  from holding Eastman Chemical or generate 8.28% return on investment over 90 days.

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

BASF SE  vs.  Eastman Chemical

BASF SE

Risk-Adjusted Performance

0 of 100

Very Weak

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

Eastman Chemical

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eastman Chemical are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Eastman Chemical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BASF SE and Eastman Chemical

The main advantage of trading using opposite BASF SE and Eastman Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BASF SE 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 BASF SE and Eastman Chemical 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.