Correlation Between Eastern and Kennametal

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

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

Diversification Opportunities for Eastern and Kennametal

0.06

Correlation Coefficient

Eastern  Kennametal

Significant diversification

The 3 months correlation between Eastern and Kennametal is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Co and Kennametal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kennametal and Eastern 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 Eastern Co are associated (or correlated) with Kennametal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kennametal has no effect on the direction of Eastern i.e., Eastern and Kennametal go up and down completely randomly.

Pair Corralation between Eastern and Kennametal

Considering the 90-day investment horizon Eastern Co is expected to generate 1.46 times more return on investment than Kennametal. However, Eastern is 1.46 times more volatile than Kennametal. It trades about 0.01 of its potential returns per unit of risk. Kennametal is currently generating about -0.08 per unit of risk. If you would invest  2,625  in Eastern Co on December 30, 2024 and sell it today you would lose (20.00) from holding Eastern Co or give up 0.76% of portfolio value over 90 days.

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

Eastern Co  vs.  Kennametal

Eastern

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eastern Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent primary indicators, Eastern is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Kennametal

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kennametal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's primary indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Eastern and Kennametal

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

The idea behind Eastern Co and Kennametal 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.