Correlation Between Eastman Chemical and Sika AG

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

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

Diversification Opportunities for Eastman Chemical and Sika AG

0.56

Correlation Coefficient

Eastman Chemical  Sika AG

Very weak diversification

The 3 months correlation between Eastman and Sika is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical and Sika AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sika AG 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 Sika AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sika AG has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and Sika AG go up and down completely randomly.

Pair Corralation between Eastman Chemical and Sika AG

Considering the 90-day investment horizon Eastman Chemical is expected to under-perform the Sika AG. But the stock apears to be less risky and, when comparing its historical volatility, Eastman Chemical is 1.04 times less risky than Sika AG. The stock trades about -0.01 of its potential returns per unit of risk. The Sika AG is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  23,558  in Sika AG on December 27, 2024 and sell it today you would earn a total of  1,962  from holding Sika AG or generate 8.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

Eastman Chemical  vs.  Sika AG

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.

Sika AG

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sika AG are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Sika AG may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Eastman Chemical and Sika AG

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

The idea behind Eastman Chemical and Sika AG 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.

Check out your portfolio center.

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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.