Correlation Between Eastman Chemical and Algoma Steel

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

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

Diversification Opportunities for Eastman Chemical and Algoma Steel

-0.41

Correlation Coefficient

Eastman Chemical  Algoma Steel

Very good diversification

The 3 months correlation between Eastman and Algoma is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical and Algoma Steel Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Algoma Steel Group 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 Algoma Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Algoma Steel Group has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and Algoma Steel go up and down completely randomly.

Pair Corralation between Eastman Chemical and Algoma Steel

Considering the 90-day investment horizon Eastman Chemical is expected to under-perform the Algoma Steel. But the stock apears to be less risky and, when comparing its historical volatility, Eastman Chemical is 1.73 times less risky than Algoma Steel. The stock trades about -0.11 of its potential returns per unit of risk. The Algoma Steel Group is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  989.00  in Algoma Steel Group on September 18, 2024 and sell it today you would lose (24.00) from holding Algoma Steel Group or give up 2.43% of portfolio value over 90 days.

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

Eastman Chemical  vs.  Algoma Steel Group

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 latest unfluctuating performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Algoma Steel Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Algoma Steel Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Algoma Steel is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Eastman Chemical and Algoma Steel

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

The idea behind Eastman Chemical and Algoma Steel Group 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.