Correlation Between Power Metal and Eastman Chemical

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

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

Diversification Opportunities for Power Metal and Eastman Chemical

0.3

Correlation Coefficient

Power Metal  Eastman Chemical

Weak diversification

The 3 months correlation between Power and Eastman is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Power Metal Resources and Eastman Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastman Chemical and Power Metal 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 Power Metal Resources 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 Power Metal i.e., Power Metal and Eastman Chemical go up and down completely randomly.

Pair Corralation between Power Metal and Eastman Chemical

Assuming the 90 days trading horizon Power Metal Resources is expected to generate 2.71 times more return on investment than Eastman Chemical. However, Power Metal is 2.71 times more volatile than Eastman Chemical Co. It trades about 0.0 of its potential returns per unit of risk. Eastman Chemical Co is currently generating about -0.02 per unit of risk. If you would invest  1,525  in Power Metal Resources on September 13, 2024 and sell it today you would lose (62.00) from holding Power Metal Resources or give up 4.07% of portfolio value over 90 days.

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

Power Metal Resources  vs.  Eastman Chemical Co

Power Metal Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Power Metal Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Power Metal is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Eastman Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eastman Chemical Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Eastman Chemical is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Power Metal and Eastman Chemical

The main advantage of trading using opposite Power Metal and Eastman Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Power Metal 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 Power Metal Resources and Eastman Chemical Co 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.