Correlation Between Eastman Chemical and Alliance Data

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

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

Diversification Opportunities for Eastman Chemical and Alliance Data

-0.74

Correlation Coefficient

Eastman Chemical  Alliance Data

Pay attention - limited upside

The 3 months correlation between Eastman and Alliance is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical Co and Alliance Data Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alliance Data Systems and Eastman Chemical 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 Eastman Chemical Co are associated (or correlated) with Alliance Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alliance Data Systems has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and Alliance Data go up and down completely randomly.

Pair Corralation between Eastman Chemical and Alliance Data

Assuming the 90 days trading horizon Eastman Chemical is expected to generate 4.84 times less return on investment than Alliance Data. But when comparing it to its historical volatility, Eastman Chemical Co is 2.21 times less risky than Alliance Data. It trades about 0.05 of its potential returns per unit of risk. Alliance Data Systems is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,237  in Alliance Data Systems on September 12, 2024 and sell it today you would earn a total of  3,241  from holding Alliance Data Systems or generate 100.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	97.08%
Values	Daily Returns

Eastman Chemical Co  vs.  Alliance Data Systems

Eastman Chemical

Risk-Adjusted Performance

0 of 100

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 current stock price uproar, may contribute to short-horizon losses for the private investors.

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 weak basic indicators, Alliance Data unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eastman Chemical and Alliance Data

The main advantage of trading using opposite Eastman Chemical and Alliance Data positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eastman Chemical position performs unexpectedly, Alliance Data 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 Alliance Data will offset losses from the drop in Alliance Data's long position.

The idea behind Eastman Chemical Co and Alliance Data Systems 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.