Correlation Between Eastman Chemical and Exxon Mobil

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

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

Diversification Opportunities for Eastman Chemical and Exxon Mobil

-0.73

Correlation Coefficient

Eastman Chemical  Exxon Mobil

Pay attention - limited upside

The 3 months correlation between Eastman and Exxon is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical and Exxon Mobil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exxon Mobil 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 Exxon Mobil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exxon Mobil has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and Exxon Mobil go up and down completely randomly.

Pair Corralation between Eastman Chemical and Exxon Mobil

Assuming the 90 days trading horizon Eastman Chemical is expected to generate 1.07 times less return on investment than Exxon Mobil. But when comparing it to its historical volatility, Eastman Chemical is 1.42 times less risky than Exxon Mobil. It trades about 0.05 of its potential returns per unit of risk. Exxon Mobil is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  6,871  in Exxon Mobil on October 23, 2024 and sell it today you would earn a total of  1,619  from holding Exxon Mobil or generate 23.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.99%
Values	Daily Returns

Eastman Chemical  vs.  Exxon Mobil

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 current stock price disturbance, may contribute to short-term losses for the investors.

Exxon Mobil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Exxon Mobil has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Exxon Mobil is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Eastman Chemical and Exxon Mobil

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

The idea behind Eastman Chemical and Exxon Mobil 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.

Check out your portfolio center.

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.