Correlation Between Eastman Chemical and Northern Star

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

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

Diversification Opportunities for Eastman Chemical and Northern Star

0.3

Correlation Coefficient

Eastman Chemical  Northern Star

Weak diversification

The 3 months correlation between Eastman and Northern is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical and Northern Star Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Star Resources 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 Northern Star. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Star Resources has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and Northern Star go up and down completely randomly.

Pair Corralation between Eastman Chemical and Northern Star

Assuming the 90 days horizon Eastman Chemical is expected to generate 0.63 times more return on investment than Northern Star. However, Eastman Chemical is 1.6 times less risky than Northern Star. It trades about -0.44 of its potential returns per unit of risk. Northern Star Resources is currently generating about -0.36 per unit of risk. If you would invest  9,766  in Eastman Chemical on September 23, 2024 and sell it today you would lose (1,132) from holding Eastman Chemical or give up 11.59% of portfolio value over 90 days.

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

Eastman Chemical  vs.  Northern Star Resources

Eastman Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eastman Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Northern Star Resources

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Eastman Chemical and Northern Star

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

The idea behind Eastman Chemical and Northern Star Resources 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.