Correlation Between Eastman Chemical and FutureFuel Corp

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

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

Diversification Opportunities for Eastman Chemical and FutureFuel Corp

0.26

Correlation Coefficient

Eastman Chemical  FutureFuel Corp

Modest diversification

The 3 months correlation between Eastman and FutureFuel is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical and FutureFuel Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FutureFuel Corp 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 FutureFuel Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FutureFuel Corp has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and FutureFuel Corp go up and down completely randomly.

Pair Corralation between Eastman Chemical and FutureFuel Corp

Considering the 90-day investment horizon Eastman Chemical is expected to generate 0.49 times more return on investment than FutureFuel Corp. However, Eastman Chemical is 2.04 times less risky than FutureFuel Corp. It trades about 0.07 of its potential returns per unit of risk. FutureFuel Corp is currently generating about -0.05 per unit of risk. If you would invest  9,846  in Eastman Chemical on September 4, 2024 and sell it today you would earn a total of  581.00  from holding Eastman Chemical or generate 5.9% return on investment over 90 days.

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

Eastman Chemical  vs.  FutureFuel Corp

Eastman Chemical

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Eastman Chemical are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Eastman Chemical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

FutureFuel Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FutureFuel Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Eastman Chemical and FutureFuel Corp

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

The idea behind Eastman Chemical and FutureFuel Corp 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.