Correlation Between LyondellBasell Industries and Eastman Chemical

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

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

Diversification Opportunities for LyondellBasell Industries and Eastman Chemical

0.76

Correlation Coefficient

LyondellBasell Industries  Eastman Chemical

Poor diversification

The 3 months correlation between LyondellBasell and Eastman is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding LyondellBasell Industries NV and Eastman Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastman Chemical and LyondellBasell Industries 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 LyondellBasell Industries NV 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 LyondellBasell Industries i.e., LyondellBasell Industries and Eastman Chemical go up and down completely randomly.

Pair Corralation between LyondellBasell Industries and Eastman Chemical

Considering the 90-day investment horizon LyondellBasell Industries NV is expected to under-perform the Eastman Chemical. But the stock apears to be less risky and, when comparing its historical volatility, LyondellBasell Industries NV is 1.69 times less risky than Eastman Chemical. The stock trades about -0.05 of its potential returns per unit of risk. The Eastman Chemical is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  9,438  in Eastman Chemical on November 19, 2024 and sell it today you would earn a total of  663.00  from holding Eastman Chemical or generate 7.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

LyondellBasell Industries NV  vs.  Eastman Chemical

LyondellBasell Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days LyondellBasell Industries NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, LyondellBasell Industries is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Eastman Chemical

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Eastman Chemical are ranked lower than 1 (%) 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.

Pair Trading with LyondellBasell Industries and Eastman Chemical

The main advantage of trading using opposite LyondellBasell Industries and Eastman Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LyondellBasell Industries 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 LyondellBasell Industries NV 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 Global Correlations module to find global opportunities by holding instruments from different markets.