Correlation Between FMC and Eastman Chemical
Can any of the company-specific risk be diversified away by investing in both FMC 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 FMC and Eastman Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FMC Corporation and Eastman Chemical, you can compare the effects of market volatilities on FMC 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 FMC with a short position of Eastman Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of FMC and Eastman Chemical.
Diversification Opportunities for FMC and Eastman Chemical
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between FMC and Eastman is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding FMC Corp. and Eastman Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastman Chemical and FMC 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 FMC Corporation 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 FMC i.e., FMC and Eastman Chemical go up and down completely randomly.
Pair Corralation between FMC and Eastman Chemical
Considering the 90-day investment horizon FMC Corporation is expected to under-perform the Eastman Chemical. In addition to that, FMC is 1.19 times more volatile than Eastman Chemical. It trades about -0.06 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 9,768 in Eastman Chemical on January 17, 2024 and sell it today you would lose (36.00) from holding Eastman Chemical or give up 0.37% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
FMC Corp. vs. Eastman Chemical
Performance |
| Timeline |
| FMC Corporation |
| Eastman Chemical |
FMC and Eastman Chemical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with FMC and Eastman Chemical
The main advantage of trading using opposite FMC and Eastman Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FMC 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 FMC Corporation 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.| Eastman Chemical vs. Olin Corporation | Eastman Chemical vs. Cabot | Eastman Chemical vs. Kronos Worldwide | Eastman Chemical vs. LyondellBasell Industries NV |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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