Correlation Between Eastman Chemical and Metalrgica Riosulense

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

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

Diversification Opportunities for Eastman Chemical and Metalrgica Riosulense

-0.55

Correlation Coefficient

Eastman Chemical  Metalrgica Riosulense

Excellent diversification

The 3 months correlation between Eastman and Metalrgica is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical and Metalrgica Riosulense SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metalrgica Riosulense 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 Metalrgica Riosulense. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metalrgica Riosulense has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and Metalrgica Riosulense go up and down completely randomly.

Pair Corralation between Eastman Chemical and Metalrgica Riosulense

Assuming the 90 days trading horizon Eastman Chemical is expected to generate 2.55 times less return on investment than Metalrgica Riosulense. But when comparing it to its historical volatility, Eastman Chemical is 14.26 times less risky than Metalrgica Riosulense. It trades about 0.24 of its potential returns per unit of risk. Metalrgica Riosulense SA is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  5,431  in Metalrgica Riosulense SA on October 6, 2024 and sell it today you would earn a total of  68.00  from holding Metalrgica Riosulense SA or generate 1.25% return on investment over 90 days.

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

Eastman Chemical  vs.  Metalrgica Riosulense SA

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.

Metalrgica Riosulense

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metalrgica Riosulense SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Preferred Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Eastman Chemical and Metalrgica Riosulense

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

The idea behind Eastman Chemical and Metalrgica Riosulense SA 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.