Correlation Between Eastern and OCCIDENTAL

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

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

Diversification Opportunities for Eastern and OCCIDENTAL

0.73

Correlation Coefficient

Eastern  OCCIDENTAL

Poor diversification

The 3 months correlation between Eastern and OCCIDENTAL is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Co and OCCIDENTAL PETE P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OCCIDENTAL PETE P 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 OCCIDENTAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OCCIDENTAL PETE P has no effect on the direction of Eastern i.e., Eastern and OCCIDENTAL go up and down completely randomly.

Pair Corralation between Eastern and OCCIDENTAL

Considering the 90-day investment horizon Eastern Co is expected to generate 1.63 times more return on investment than OCCIDENTAL. However, Eastern is 1.63 times more volatile than OCCIDENTAL PETE P. It trades about 0.06 of its potential returns per unit of risk. OCCIDENTAL PETE P is currently generating about 0.0 per unit of risk. If you would invest  2,063  in Eastern Co on September 15, 2024 and sell it today you would earn a total of  836.00  from holding Eastern Co or generate 40.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	72.18%
Values	Daily Returns

Eastern Co  vs.  OCCIDENTAL PETE P

Eastern

Risk-Adjusted Performance

0 of 100

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.

OCCIDENTAL PETE P

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days OCCIDENTAL PETE P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, OCCIDENTAL is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Eastern and OCCIDENTAL

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

The idea behind Eastern Co and OCCIDENTAL PETE P 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.