Correlation Between SPACE and Eastman Chemical

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

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

Diversification Opportunities for SPACE and Eastman Chemical

0.08

Correlation Coefficient

SPACE  Eastman Chemical

Significant diversification

The 3 months correlation between SPACE and Eastman is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding SPACE and Eastman Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastman Chemical and SPACE 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 SPACE 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 SPACE i.e., SPACE and Eastman Chemical go up and down completely randomly.

Pair Corralation between SPACE and Eastman Chemical

Assuming the 90 days horizon SPACE is expected to generate 3.67 times more return on investment than Eastman Chemical. However, SPACE is 3.67 times more volatile than Eastman Chemical. It trades about 0.27 of its potential returns per unit of risk. Eastman Chemical is currently generating about -0.05 per unit of risk. If you would invest  36.00  in SPACE on September 3, 2024 and sell it today you would earn a total of  23.00  from holding SPACE or generate 63.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	97.67%
Values	Daily Returns

SPACE  vs.  Eastman Chemical

SPACE

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPACE are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, SPACE exhibited solid returns over the last few months and may actually be approaching a breakup point.

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

Pair Trading with SPACE and Eastman Chemical

The main advantage of trading using opposite SPACE and Eastman Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPACE 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 SPACE 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.

Check out your portfolio center.

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.