Correlation Between Eastman Chemical and Ribbon Communications

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

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

Diversification Opportunities for Eastman Chemical and Ribbon Communications

0.71

Correlation Coefficient

Eastman Chemical  Ribbon Communications

Poor diversification

The 3 months correlation between Eastman and Ribbon is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical and Ribbon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ribbon Communications 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 Ribbon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ribbon Communications has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and Ribbon Communications go up and down completely randomly.

Pair Corralation between Eastman Chemical and Ribbon Communications

Assuming the 90 days horizon Eastman Chemical is expected to under-perform the Ribbon Communications. But the stock apears to be less risky and, when comparing its historical volatility, Eastman Chemical is 2.21 times less risky than Ribbon Communications. The stock trades about -0.04 of its potential returns per unit of risk. The Ribbon Communications is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  384.00  in Ribbon Communications on December 30, 2024 and sell it today you would lose (22.00) from holding Ribbon Communications or give up 5.73% of portfolio value over 90 days.

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

Eastman Chemical  vs.  Ribbon Communications

Eastman Chemical

Risk-Adjusted Performance

Very Weak

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

Ribbon Communications

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Eastman Chemical and Ribbon Communications

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

The idea behind Eastman Chemical and Ribbon Communications 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.