Correlation Between Eastman Chemical and Nextera Energy

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

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

Diversification Opportunities for Eastman Chemical and Nextera Energy

0.27

Correlation Coefficient

Eastman Chemical  Nextera Energy

Modest diversification

The 3 months correlation between Eastman and Nextera is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical and Nextera Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nextera Energy 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 Nextera Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nextera Energy has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and Nextera Energy go up and down completely randomly.

Pair Corralation between Eastman Chemical and Nextera Energy

Considering the 90-day investment horizon Eastman Chemical is expected to under-perform the Nextera Energy. In addition to that, Eastman Chemical is 1.17 times more volatile than Nextera Energy. It trades about -0.04 of its total potential returns per unit of risk. Nextera Energy is currently generating about -0.05 per unit of volatility. If you would invest  4,341  in Nextera Energy on November 28, 2024 and sell it today you would lose (191.00) from holding Nextera Energy or give up 4.4% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.31%
Values	Daily Returns

Eastman Chemical  vs.  Nextera Energy

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. In spite of very healthy primary indicators, Eastman Chemical is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Nextera Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nextera Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Nextera Energy is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Eastman Chemical and Nextera Energy

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

The idea behind Eastman Chemical and Nextera Energy 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.