Correlation Between Dow and Eastman Chemical

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

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

Diversification Opportunities for Dow and Eastman Chemical

0.74

Correlation Coefficient

Dow  Eastman Chemical

Poor diversification

The 3 months correlation between Dow and Eastman is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Dow Inc and Eastman Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastman Chemical and Dow 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 Dow Inc 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 Dow i.e., Dow and Eastman Chemical go up and down completely randomly.

Pair Corralation between Dow and Eastman Chemical

Assuming the 90 days horizon Dow Inc is expected to generate 1.57 times more return on investment than Eastman Chemical. However, Dow is 1.57 times more volatile than Eastman Chemical. It trades about -0.29 of its potential returns per unit of risk. Eastman Chemical is currently generating about -0.54 per unit of risk. If you would invest  4,231  in Dow Inc on October 4, 2024 and sell it today you would lose (401.00) from holding Dow Inc or give up 9.48% of portfolio value over 90 days.

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

Dow Inc  vs.  Eastman Chemical

Dow Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dow Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Eastman Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eastman Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Dow and Eastman Chemical

The main advantage of trading using opposite Dow and Eastman Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow 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 Dow Inc 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.