Correlation Between Fevertree Drinks and Eastman Chemical

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

By analyzing existing cross correlation between Fevertree Drinks Plc and Eastman Chemical, you can compare the effects of market volatilities on Fevertree Drinks and Eastman Chemical 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 Fevertree Drinks with a short position of Eastman Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fevertree Drinks and Eastman Chemical.

Diversification Opportunities for Fevertree Drinks and Eastman Chemical

0.66

Correlation Coefficient

Fevertree Drinks  Eastman Chemical

Poor diversification

The 3 months correlation between Fevertree and Eastman is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Fevertree Drinks Plc and Eastman Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastman Chemical and Fevertree Drinks 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 Fevertree Drinks Plc are associated (or correlated) with Eastman Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastman Chemical has no effect on the direction of Fevertree Drinks i.e., Fevertree Drinks and Eastman Chemical go up and down completely randomly.

Pair Corralation between Fevertree Drinks and Eastman Chemical

Assuming the 90 days horizon Fevertree Drinks Plc is expected to generate 2.22 times more return on investment than Eastman Chemical. However, Fevertree Drinks is 2.22 times more volatile than Eastman Chemical. It trades about -0.01 of its potential returns per unit of risk. Eastman Chemical is currently generating about -0.07 per unit of risk. If you would invest  906.00  in Fevertree Drinks Plc on December 4, 2024 and sell it today you would lose (56.00) from holding Fevertree Drinks Plc or give up 6.18% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	93.33%
Values	Daily Returns

Fevertree Drinks Plc  vs.  Eastman Chemical

Fevertree Drinks Plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fevertree Drinks Plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Fevertree Drinks is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Eastman Chemical

Risk-Adjusted Performance

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 unsteady 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.

Pair Trading with Fevertree Drinks and Eastman Chemical

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

The idea behind Fevertree Drinks Plc and Eastman Chemical 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.