Correlation Between Eastman Chemical and Insteel Industries

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

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

Diversification Opportunities for Eastman Chemical and Insteel Industries

-0.25

Correlation Coefficient

Eastman Chemical  Insteel Industries

Very good diversification

The 3 months correlation between Eastman and Insteel is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical and Insteel Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insteel Industries 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 Insteel Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Insteel Industries has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and Insteel Industries go up and down completely randomly.

Pair Corralation between Eastman Chemical and Insteel Industries

Assuming the 90 days horizon Eastman Chemical is expected to generate 0.59 times more return on investment than Insteel Industries. However, Eastman Chemical is 1.7 times less risky than Insteel Industries. It trades about 0.09 of its potential returns per unit of risk. Insteel Industries is currently generating about -0.02 per unit of risk. If you would invest  9,117  in Eastman Chemical on September 3, 2024 and sell it today you would earn a total of  755.00  from holding Eastman Chemical or generate 8.28% 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.  Insteel Industries

Eastman Chemical

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eastman Chemical are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Eastman Chemical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Insteel Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Insteel Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Insteel Industries is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Eastman Chemical and Insteel Industries

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

The idea behind Eastman Chemical and Insteel Industries 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.