Correlation Between Eastman Chemical and BYD ELECTRONIC

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

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

Diversification Opportunities for Eastman Chemical and BYD ELECTRONIC

0.65

Correlation Coefficient

Eastman Chemical  BYD ELECTRONIC

Poor diversification

The 3 months correlation between Eastman and BYD is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical and BYD ELECTRONIC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BYD ELECTRONIC 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 BYD ELECTRONIC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BYD ELECTRONIC has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and BYD ELECTRONIC go up and down completely randomly.

Pair Corralation between Eastman Chemical and BYD ELECTRONIC

Assuming the 90 days horizon Eastman Chemical is expected to under-perform the BYD ELECTRONIC. But the stock apears to be less risky and, when comparing its historical volatility, Eastman Chemical is 3.3 times less risky than BYD ELECTRONIC. The stock trades about -0.03 of its potential returns per unit of risk. The BYD ELECTRONIC is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  513.00  in BYD ELECTRONIC on December 29, 2024 and sell it today you would lose (12.00) from holding BYD ELECTRONIC or give up 2.34% of portfolio value over 90 days.

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

Eastman Chemical  vs.  BYD ELECTRONIC

Eastman Chemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eastman Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Eastman Chemical is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

BYD ELECTRONIC

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BYD ELECTRONIC are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, BYD ELECTRONIC may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Eastman Chemical and BYD ELECTRONIC

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

The idea behind Eastman Chemical and BYD ELECTRONIC 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.