Correlation Between Stepan and Eastman Chemical

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

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

Diversification Opportunities for Stepan and Eastman Chemical

-0.09

Correlation Coefficient

Stepan  Eastman Chemical

Good diversification

The 3 months correlation between Stepan and Eastman is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Eastman Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastman Chemical and Stepan 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 Stepan Company 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 Stepan i.e., Stepan and Eastman Chemical go up and down completely randomly.

Pair Corralation between Stepan and Eastman Chemical

Considering the 90-day investment horizon Stepan Company is expected to under-perform the Eastman Chemical. In addition to that, Stepan is 1.0 times more volatile than Eastman Chemical. It trades about -0.1 of its total potential returns per unit of risk. Eastman Chemical is currently generating about -0.01 per unit of volatility. If you would invest  9,090  in Eastman Chemical on December 27, 2024 and sell it today you would lose (198.00) from holding Eastman Chemical or give up 2.18% of portfolio value over 90 days.

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

Stepan Company  vs.  Eastman Chemical

Stepan Company

Risk-Adjusted Performance

Very Weak

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

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. 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 Stepan and Eastman Chemical

The main advantage of trading using opposite Stepan and Eastman Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepan 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 Stepan Company 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.

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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.