Correlation Between Ribbon Communications and Eastman Chemical

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

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

Diversification Opportunities for Ribbon Communications and Eastman Chemical

0.71

Correlation Coefficient

Ribbon Communications  Eastman Chemical

Poor diversification

The 3 months correlation between Ribbon and Eastman is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Ribbon Communications and Eastman Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastman Chemical and Ribbon Communications 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 Ribbon Communications 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 Ribbon Communications i.e., Ribbon Communications and Eastman Chemical go up and down completely randomly.

Pair Corralation between Ribbon Communications and Eastman Chemical

Assuming the 90 days trading horizon Ribbon Communications is expected to generate 2.21 times more return on investment than Eastman Chemical. However, Ribbon Communications is 2.21 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 -0.04 per unit of risk. If you would invest  384.00  in Ribbon Communications on December 30, 2024 and sell it today you would lose (22.00) from holding Ribbon Communications or give up 5.73% of portfolio value over 90 days.

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

Ribbon Communications  vs.  Eastman Chemical

Ribbon Communications

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Ribbon Communications and Eastman Chemical

The main advantage of trading using opposite Ribbon Communications and Eastman Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ribbon Communications 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 Ribbon Communications 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.