Correlation Between Alliance Data and Eastman Chemical

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

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

Diversification Opportunities for Alliance Data and Eastman Chemical

-0.5

Correlation Coefficient

Alliance Data  Eastman Chemical

Very good diversification

The 3 months correlation between Alliance and Eastman is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Data Systems and Eastman Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastman Chemical and Alliance Data 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 Alliance Data Systems 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 Alliance Data i.e., Alliance Data and Eastman Chemical go up and down completely randomly.

Pair Corralation between Alliance Data and Eastman Chemical

Assuming the 90 days trading horizon Alliance Data Systems is expected to generate 2.24 times more return on investment than Eastman Chemical. However, Alliance Data is 2.24 times more volatile than Eastman Chemical Co. It trades about 0.17 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  4,751  in Alliance Data Systems on September 12, 2024 and sell it today you would earn a total of  1,727  from holding Alliance Data Systems or generate 36.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Alliance Data Systems  vs.  Eastman Chemical Co

Alliance Data Systems

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Data Systems are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Alliance Data unveiled solid returns over the last few months and may actually be approaching a breakup point.

Eastman Chemical

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Eastman Chemical Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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 Alliance Data and Eastman Chemical

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

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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.