Correlation Between Cabot and Eastman Chemical

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

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

Diversification Opportunities for Cabot and Eastman Chemical

0.49

Correlation Coefficient

Cabot  Eastman Chemical

Very weak diversification

The 3 months correlation between Cabot and Eastman is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Cabot and Eastman Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastman Chemical and Cabot 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 Cabot 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 Cabot i.e., Cabot and Eastman Chemical go up and down completely randomly.

Pair Corralation between Cabot and Eastman Chemical

Considering the 90-day investment horizon Cabot is expected to under-perform the Eastman Chemical. But the stock apears to be less risky and, when comparing its historical volatility, Cabot is 1.29 times less risky than Eastman Chemical. The stock trades about -0.06 of its potential returns per unit of risk. The Eastman Chemical is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  9,341  in Eastman Chemical on November 28, 2024 and sell it today you would earn a total of  478.00  from holding Eastman Chemical or generate 5.12% return on investment over 90 days.

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

Cabot  vs.  Eastman Chemical

Cabot

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cabot has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental drivers remain comparatively stable which may send shares a bit higher in March 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Eastman Chemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eastman Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Eastman Chemical is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Cabot and Eastman Chemical

The main advantage of trading using opposite Cabot and Eastman Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cabot 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 Cabot 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.