Correlation Between Alfa Financial and Eastman Chemical

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

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

Diversification Opportunities for Alfa Financial and Eastman Chemical

-0.37

Correlation Coefficient

Alfa Financial  Eastman Chemical

Very good diversification

The 3 months correlation between Alfa and Eastman is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Alfa Financial Software and Eastman Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastman Chemical and Alfa Financial 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 Alfa Financial Software 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 Alfa Financial i.e., Alfa Financial and Eastman Chemical go up and down completely randomly.

Pair Corralation between Alfa Financial and Eastman Chemical

Assuming the 90 days trading horizon Alfa Financial Software is expected to generate 1.38 times more return on investment than Eastman Chemical. However, Alfa Financial is 1.38 times more volatile than Eastman Chemical. It trades about 0.07 of its potential returns per unit of risk. Eastman Chemical is currently generating about 0.05 per unit of risk. If you would invest  170.00  in Alfa Financial Software on October 4, 2024 and sell it today you would earn a total of  78.00  from holding Alfa Financial Software or generate 45.88% return on investment over 90 days.

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

Alfa Financial Software  vs.  Eastman Chemical

Alfa Financial Software

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alfa Financial Software are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Alfa Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 weak 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 Alfa Financial and Eastman Chemical

The main advantage of trading using opposite Alfa Financial and Eastman Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alfa Financial 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 Alfa Financial Software 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.