Correlation Between Eastman Chemical and Capital One

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

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

Diversification Opportunities for Eastman Chemical and Capital One

0.48

Correlation Coefficient

Eastman Chemical  Capital One

Very weak diversification

The 3 months correlation between Eastman and Capital is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical and Capital One Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital One Financial 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 are associated (or correlated) with Capital One. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital One Financial has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and Capital One go up and down completely randomly.

Pair Corralation between Eastman Chemical and Capital One

Assuming the 90 days trading horizon Eastman Chemical is expected to generate 58.25 times less return on investment than Capital One. But when comparing it to its historical volatility, Eastman Chemical is 31.9 times less risky than Capital One. It trades about 0.13 of its potential returns per unit of risk. Capital One Financial is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  39,860  in Capital One Financial on October 7, 2024 and sell it today you would earn a total of  16,912  from holding Capital One Financial or generate 42.43% return on investment over 90 days.

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

Eastman Chemical  vs.  Capital One Financial

Eastman Chemical

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eastman Chemical are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong primary indicators, Eastman Chemical is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Capital One Financial

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Capital One sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eastman Chemical and Capital One

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

The idea behind Eastman Chemical and Capital One Financial 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.