Correlation Between LB Foster and Eastman Chemical

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

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

Diversification Opportunities for LB Foster and Eastman Chemical

-0.64

Correlation Coefficient

LB Foster  Eastman Chemical

Excellent diversification

The 3 months correlation between FSTR and Eastman is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding LB Foster and Eastman Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastman Chemical and LB Foster 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 LB Foster are associated (or correlated) with Eastman Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastman Chemical has no effect on the direction of LB Foster i.e., LB Foster and Eastman Chemical go up and down completely randomly.

Pair Corralation between LB Foster and Eastman Chemical

Given the investment horizon of 90 days LB Foster is expected to generate 2.35 times more return on investment than Eastman Chemical. However, LB Foster is 2.35 times more volatile than Eastman Chemical. It trades about 0.15 of its potential returns per unit of risk. Eastman Chemical is currently generating about -0.22 per unit of risk. If you would invest  2,043  in LB Foster on September 30, 2024 and sell it today you would earn a total of  629.00  from holding LB Foster or generate 30.79% return on investment over 90 days.

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

LB Foster  vs.  Eastman Chemical

LB Foster

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in LB Foster are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, LB Foster reported solid returns over the last few months and may actually be approaching a breakup point.

Eastman Chemical

Risk-Adjusted Performance

0 of 100

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 unfluctuating performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with LB Foster and Eastman Chemical

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

The idea behind LB Foster and Eastman 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.