Correlation Between North American and Eastman Chemical

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

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

Diversification Opportunities for North American and Eastman Chemical

0.11

Correlation Coefficient

North American  Eastman Chemical

Average diversification

The 3 months correlation between North and Eastman is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and Eastman Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastman Chemical and North American 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 North American Construction 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 North American i.e., North American and Eastman Chemical go up and down completely randomly.

Pair Corralation between North American and Eastman Chemical

Assuming the 90 days horizon North American Construction is expected to under-perform the Eastman Chemical. In addition to that, North American is 1.43 times more volatile than Eastman Chemical. It trades about -0.15 of its total potential returns per unit of risk. Eastman Chemical is currently generating about -0.03 per unit of volatility. If you would invest  8,648  in Eastman Chemical on December 29, 2024 and sell it today you would lose (358.00) from holding Eastman Chemical or give up 4.14% of portfolio value over 90 days.

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

North American Construction  vs.  Eastman Chemical

North American Const

Risk-Adjusted Performance

Very Weak

Over the last 90 days North American Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company 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. Despite nearly stable basic indicators, Eastman Chemical is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with North American and Eastman Chemical

The main advantage of trading using opposite North American and Eastman Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North American 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 North American Construction 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.