Correlation Between Eastman Chemical and Cogent Communications

Can any of the company-specific risk be diversified away by investing in both Eastman Chemical and Cogent 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 Cogent 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 Cogent Communications Holdings, you can compare the effects of market volatilities on Eastman Chemical and Cogent 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 Cogent Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eastman Chemical and Cogent Communications.

Diversification Opportunities for Eastman Chemical and Cogent Communications

0.58

Correlation Coefficient

Eastman Chemical  Cogent Communications

Very weak diversification

The 3 months correlation between Eastman and Cogent is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical and Cogent Communications Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cogent 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 Cogent Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cogent Communications has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and Cogent Communications go up and down completely randomly.

Pair Corralation between Eastman Chemical and Cogent Communications

Assuming the 90 days horizon Eastman Chemical is expected to generate 2.66 times less return on investment than Cogent Communications. But when comparing it to its historical volatility, Eastman Chemical is 1.39 times less risky than Cogent Communications. It trades about 0.1 of its potential returns per unit of risk. Cogent Communications Holdings is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  6,122  in Cogent Communications Holdings on August 31, 2024 and sell it today you would earn a total of  1,678  from holding Cogent Communications Holdings or generate 27.41% 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.  Cogent Communications Holdings

Eastman Chemical

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eastman Chemical are ranked lower than 8 (%) 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 December 2024.

Cogent Communications

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cogent Communications Holdings are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Cogent Communications reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eastman Chemical and Cogent Communications

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

The idea behind Eastman Chemical and Cogent Communications Holdings 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.