Correlation Between Eastman Chemical and Westlake Chemical

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

Diversification Opportunities for Eastman Chemical and Westlake Chemical

0.57

Correlation Coefficient

Eastman Chemical  Westlake Chemical

Very weak diversification

The 3 months correlation between Eastman and Westlake is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical and Westlake Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westlake 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 Westlake Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westlake Chemical has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and Westlake Chemical go up and down completely randomly.

Pair Corralation between Eastman Chemical and Westlake Chemical

Considering the 90-day investment horizon Eastman Chemical is expected to generate 1.16 times more return on investment than Westlake Chemical. However, Eastman Chemical is 1.16 times more volatile than Westlake Chemical. It trades about -0.01 of its potential returns per unit of risk. Westlake Chemical is currently generating about -0.1 per unit of risk. If you would invest  10,499  in Eastman Chemical on August 31, 2024 and sell it today you would lose (76.00) from holding Eastman Chemical or give up 0.72% of portfolio value over 90 days.

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

Eastman Chemical  vs.  Westlake Chemical

Eastman Chemical

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Eastman Chemical are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

Westlake Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Westlake Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Eastman Chemical and Westlake Chemical

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

The idea behind Eastman Chemical and Westlake 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.