Correlation Between SBM OFFSHORE and Eastman Chemical

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

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

Diversification Opportunities for SBM OFFSHORE and Eastman Chemical

0.08

Correlation Coefficient

SBM OFFSHORE  Eastman Chemical

Significant diversification

The 3 months correlation between SBM and Eastman is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding SBM OFFSHORE and Eastman Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastman Chemical and SBM OFFSHORE 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 SBM OFFSHORE 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 SBM OFFSHORE i.e., SBM OFFSHORE and Eastman Chemical go up and down completely randomly.

Pair Corralation between SBM OFFSHORE and Eastman Chemical

Assuming the 90 days trading horizon SBM OFFSHORE is expected to generate 1.21 times more return on investment than Eastman Chemical. However, SBM OFFSHORE is 1.21 times more volatile than Eastman Chemical. It trades about 0.16 of its potential returns per unit of risk. Eastman Chemical is currently generating about -0.03 per unit of risk. If you would invest  1,672  in SBM OFFSHORE on December 21, 2024 and sell it today you would earn a total of  340.00  from holding SBM OFFSHORE or generate 20.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

SBM OFFSHORE  vs.  Eastman Chemical

SBM OFFSHORE

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SBM OFFSHORE are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, SBM OFFSHORE exhibited solid returns over the last few months and may actually be approaching a breakup point.

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. Despite nearly stable basic indicators, Eastman Chemical is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with SBM OFFSHORE and Eastman Chemical

The main advantage of trading using opposite SBM OFFSHORE and Eastman Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SBM OFFSHORE 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 SBM OFFSHORE 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.