Correlation Between Eastman Chemical and ITALIAN WINE

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

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

Diversification Opportunities for Eastman Chemical and ITALIAN WINE

0.44

Correlation Coefficient

Eastman Chemical  ITALIAN WINE

Very weak diversification

The 3 months correlation between Eastman and ITALIAN is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical and ITALIAN WINE BRANDS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITALIAN WINE BRANDS 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 ITALIAN WINE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITALIAN WINE BRANDS has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and ITALIAN WINE go up and down completely randomly.

Pair Corralation between Eastman Chemical and ITALIAN WINE

Assuming the 90 days horizon Eastman Chemical is expected to generate 0.55 times more return on investment than ITALIAN WINE. However, Eastman Chemical is 1.82 times less risky than ITALIAN WINE. It trades about 0.14 of its potential returns per unit of risk. ITALIAN WINE BRANDS is currently generating about 0.06 per unit of risk. If you would invest  8,827  in Eastman Chemical on September 5, 2024 and sell it today you would earn a total of  1,163  from holding Eastman Chemical or generate 13.18% return on investment over 90 days.

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

Eastman Chemical  vs.  ITALIAN WINE BRANDS

Eastman Chemical

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Eastman Chemical are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Eastman Chemical reported solid returns over the last few months and may actually be approaching a breakup point.

ITALIAN WINE BRANDS

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pair Trading with Eastman Chemical and ITALIAN WINE

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

The idea behind Eastman Chemical and ITALIAN WINE BRANDS 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.