Correlation Between Eastman Chemical and Devon Energy

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

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

Diversification Opportunities for Eastman Chemical and Devon Energy

-0.28

Correlation Coefficient

Eastman Chemical  Devon Energy

Very good diversification

The 3 months correlation between Eastman and Devon is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical and Devon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Devon Energy 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 Devon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Devon Energy has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and Devon Energy go up and down completely randomly.

Pair Corralation between Eastman Chemical and Devon Energy

Assuming the 90 days trading horizon Eastman Chemical is expected to generate 1.96 times less return on investment than Devon Energy. But when comparing it to its historical volatility, Eastman Chemical is 3.6 times less risky than Devon Energy. It trades about 0.1 of its potential returns per unit of risk. Devon Energy is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  19,351  in Devon Energy on December 24, 2024 and sell it today you would earn a total of  1,207  from holding Devon Energy or generate 6.24% return on investment over 90 days.

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

Eastman Chemical  vs.  Devon Energy

Eastman Chemical

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eastman Chemical are ranked lower than 8 (%) 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 current stock price disturbance, may contribute to short-term losses for the investors.

Devon Energy

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Devon Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Devon Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Eastman Chemical and Devon Energy

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

The idea behind Eastman Chemical and Devon Energy 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.