Correlation Between Eastman Chemical and Sumitomo Chemical

Can any of the company-specific risk be diversified away by investing in both Eastman Chemical and Sumitomo 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 Sumitomo 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 Sumitomo Chemical, you can compare the effects of market volatilities on Eastman Chemical and Sumitomo 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 Sumitomo Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eastman Chemical and Sumitomo Chemical.

Diversification Opportunities for Eastman Chemical and Sumitomo Chemical

0.7

Correlation Coefficient

Eastman Chemical  Sumitomo Chemical

Poor diversification

The 3 months correlation between Eastman and Sumitomo is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical and Sumitomo Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo 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 Sumitomo Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Chemical has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and Sumitomo Chemical go up and down completely randomly.

Pair Corralation between Eastman Chemical and Sumitomo Chemical

Assuming the 90 days horizon Eastman Chemical is expected to under-perform the Sumitomo Chemical. But the stock apears to be less risky and, when comparing its historical volatility, Eastman Chemical is 1.85 times less risky than Sumitomo Chemical. The stock trades about -0.06 of its potential returns per unit of risk. The Sumitomo Chemical is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  222.00  in Sumitomo Chemical on December 1, 2024 and sell it today you would lose (8.00) from holding Sumitomo Chemical or give up 3.6% 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.  Sumitomo 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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Sumitomo Chemical

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Eastman Chemical and Sumitomo Chemical

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

The idea behind Eastman Chemical and Sumitomo 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.