Correlation Between Eastman Chemical and Quaker Chemical

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

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

Diversification Opportunities for Eastman Chemical and Quaker Chemical

0.61

Correlation Coefficient

Eastman Chemical  Quaker Chemical

Poor diversification

The 3 months correlation between Eastman and Quaker is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical and Quaker Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quaker Chemical 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 Quaker Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quaker Chemical has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and Quaker Chemical go up and down completely randomly.

Pair Corralation between Eastman Chemical and Quaker Chemical

Assuming the 90 days horizon Eastman Chemical is expected to under-perform the Quaker Chemical. But the stock apears to be less risky and, when comparing its historical volatility, Eastman Chemical is 1.79 times less risky than Quaker Chemical. The stock trades about -0.15 of its potential returns per unit of risk. The Quaker Chemical is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  13,500  in Quaker Chemical on December 4, 2024 and sell it today you would lose (200.00) from holding Quaker Chemical or give up 1.48% 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.  Quaker Chemical

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.

Quaker Chemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Quaker Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady 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.

Pair Trading with Eastman Chemical and Quaker Chemical

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

The idea behind Eastman Chemical and Quaker 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.

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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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.