Correlation Between Eastman Chemical and Cars

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

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

Diversification Opportunities for Eastman Chemical and Cars

-0.48

Correlation Coefficient

Eastman Chemical  Cars

Very good diversification

The 3 months correlation between Eastman and Cars is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical and Cars Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cars Inc 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 Cars. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cars Inc has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and Cars go up and down completely randomly.

Pair Corralation between Eastman Chemical and Cars

Considering the 90-day investment horizon Eastman Chemical is expected to generate 0.66 times more return on investment than Cars. However, Eastman Chemical is 1.51 times less risky than Cars. It trades about -0.02 of its potential returns per unit of risk. Cars Inc is currently generating about -0.03 per unit of risk. If you would invest  9,560  in Eastman Chemical on September 25, 2024 and sell it today you would lose (433.00) from holding Eastman Chemical or give up 4.53% 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.  Cars Inc

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 unfluctuating performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Cars Inc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cars Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Cars is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Eastman Chemical and Cars

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

The idea behind Eastman Chemical and Cars Inc 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.