Correlation Between Eastman Chemical and Mitsui Chemicals

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

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

Diversification Opportunities for Eastman Chemical and Mitsui Chemicals

-0.35

Correlation Coefficient

Eastman Chemical  Mitsui Chemicals

Very good diversification

The 3 months correlation between Eastman and Mitsui is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical and Mitsui Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsui 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 are associated (or correlated) with Mitsui Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mitsui Chemicals has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and Mitsui Chemicals go up and down completely randomly.

Pair Corralation between Eastman Chemical and Mitsui Chemicals

Assuming the 90 days horizon Eastman Chemical is expected to under-perform the Mitsui Chemicals. In addition to that, Eastman Chemical is 1.31 times more volatile than Mitsui Chemicals. It trades about -0.04 of its total potential returns per unit of risk. Mitsui Chemicals is currently generating about 0.06 per unit of volatility. If you would invest  2,036  in Mitsui Chemicals on December 30, 2024 and sell it today you would earn a total of  84.00  from holding Mitsui Chemicals or generate 4.13% return on investment over 90 days.

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

Eastman Chemical  vs.  Mitsui Chemicals

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Mitsui Chemicals

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mitsui Chemicals are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound forward indicators, Mitsui Chemicals is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Eastman Chemical and Mitsui Chemicals

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

The idea behind Eastman Chemical and Mitsui 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.