Correlation Between Electronic Arts and Eastman Chemical

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

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

Diversification Opportunities for Electronic Arts and Eastman Chemical

-0.56

Correlation Coefficient

Electronic Arts  Eastman Chemical

Excellent diversification

The 3 months correlation between Electronic and Eastman is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Electronic Arts and Eastman Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastman Chemical and Electronic Arts 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 Electronic Arts 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 Electronic Arts i.e., Electronic Arts and Eastman Chemical go up and down completely randomly.

Pair Corralation between Electronic Arts and Eastman Chemical

Allowing for the 90-day total investment horizon Electronic Arts is expected to generate 0.96 times more return on investment than Eastman Chemical. However, Electronic Arts is 1.04 times less risky than Eastman Chemical. It trades about -0.42 of its potential returns per unit of risk. Eastman Chemical is currently generating about -0.53 per unit of risk. If you would invest  16,395  in Electronic Arts on September 24, 2024 and sell it today you would lose (1,615) from holding Electronic Arts or give up 9.85% of portfolio value over 90 days.

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

Electronic Arts  vs.  Eastman Chemical

Electronic Arts

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Electronic Arts are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Electronic Arts is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Eastman Chemical

Risk-Adjusted Performance

0 of 100

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 unfluctuating performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Electronic Arts and Eastman Chemical

The main advantage of trading using opposite Electronic Arts and Eastman Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Electronic Arts 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 Electronic Arts 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.