Correlation Between JAPAN TOBACCO and Eastman Chemical

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

By analyzing existing cross correlation between JAPAN TOBACCO UNSPADR12 and Eastman Chemical, you can compare the effects of market volatilities on JAPAN TOBACCO 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 JAPAN TOBACCO with a short position of Eastman Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of JAPAN TOBACCO and Eastman Chemical.

Diversification Opportunities for JAPAN TOBACCO and Eastman Chemical

0.66

Correlation Coefficient

JAPAN TOBACCO  Eastman Chemical

Poor diversification

The 3 months correlation between JAPAN and Eastman is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding JAPAN TOBACCO UNSPADR12 and Eastman Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastman Chemical and JAPAN TOBACCO 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 JAPAN TOBACCO UNSPADR12 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 JAPAN TOBACCO i.e., JAPAN TOBACCO and Eastman Chemical go up and down completely randomly.

Pair Corralation between JAPAN TOBACCO and Eastman Chemical

Assuming the 90 days trading horizon JAPAN TOBACCO UNSPADR12 is expected to generate 0.42 times more return on investment than Eastman Chemical. However, JAPAN TOBACCO UNSPADR12 is 2.36 times less risky than Eastman Chemical. It trades about 0.29 of its potential returns per unit of risk. Eastman Chemical is currently generating about 0.08 per unit of risk. If you would invest  1,250  in JAPAN TOBACCO UNSPADR12 on March 13, 2024 and sell it today you would earn a total of  50.00  from holding JAPAN TOBACCO UNSPADR12 or generate 4.0% return on investment over 90 days.

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

JAPAN TOBACCO UNSPADR12  vs.  Eastman Chemical

JAPAN TOBACCO UNSPADR12

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in JAPAN TOBACCO UNSPADR12 are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, JAPAN TOBACCO may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Eastman Chemical

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Eastman Chemical are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Eastman Chemical reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with JAPAN TOBACCO and Eastman Chemical

The main advantage of trading using opposite JAPAN TOBACCO and Eastman Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JAPAN TOBACCO 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 JAPAN TOBACCO UNSPADR12 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.