Correlation Between Eastman Chemical and Community

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

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

Diversification Opportunities for Eastman Chemical and Community

0.35

Correlation Coefficient

Eastman Chemical  Community

Weak diversification

The 3 months correlation between Eastman and Community is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical and Community Health Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Community Health Systems 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 Community. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Community Health Systems has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and Community go up and down completely randomly.

Pair Corralation between Eastman Chemical and Community

Considering the 90-day investment horizon Eastman Chemical is expected to generate 0.43 times more return on investment than Community. However, Eastman Chemical is 2.34 times less risky than Community. It trades about -0.03 of its potential returns per unit of risk. Community Health Systems is currently generating about -0.17 per unit of risk. If you would invest  10,229  in Eastman Chemical on September 13, 2024 and sell it today you would lose (296.00) from holding Eastman Chemical or give up 2.89% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	71.43%
Values	Daily Returns

Eastman Chemical  vs.  Community Health Systems

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 very healthy primary indicators, Eastman Chemical is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Community Health Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Community Health Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for Community Health Systems investors.

Pair Trading with Eastman Chemical and Community

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

The idea behind Eastman Chemical and Community Health Systems 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..