Correlation Between Eastman Chemical and TRI Pointe

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

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

Diversification Opportunities for Eastman Chemical and TRI Pointe

0.92

Correlation Coefficient

Eastman Chemical  TRI Pointe

Almost no diversification

The 3 months correlation between Eastman and TRI is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical and TRI Pointe Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TRI Pointe Homes 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 TRI Pointe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TRI Pointe Homes has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and TRI Pointe go up and down completely randomly.

Pair Corralation between Eastman Chemical and TRI Pointe

Considering the 90-day investment horizon Eastman Chemical is expected to generate 0.87 times more return on investment than TRI Pointe. However, Eastman Chemical is 1.14 times less risky than TRI Pointe. It trades about -0.26 of its potential returns per unit of risk. TRI Pointe Homes is currently generating about -0.23 per unit of risk. If you would invest  10,281  in Eastman Chemical on October 7, 2024 and sell it today you would lose (1,414) from holding Eastman Chemical or give up 13.75% of portfolio value over 90 days.

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

Eastman Chemical  vs.  TRI Pointe Homes

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

TRI Pointe Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TRI Pointe Homes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Eastman Chemical and TRI Pointe

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

The idea behind Eastman Chemical and TRI Pointe Homes 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.