Correlation Between REX American and Eastman Chemical

Can any of the company-specific risk be diversified away by investing in both REX 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 REX 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 REX American Resources and Eastman Chemical, you can compare the effects of market volatilities on REX 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 REX American with a short position of Eastman Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of REX American and Eastman Chemical.

Diversification Opportunities for REX American and Eastman Chemical

0.06

Correlation Coefficient

REX American  Eastman Chemical

Significant diversification

The 3 months correlation between REX and Eastman is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding REX American Resources and Eastman Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastman Chemical and REX 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 REX American Resources 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 REX American i.e., REX American and Eastman Chemical go up and down completely randomly.

Pair Corralation between REX American and Eastman Chemical

Considering the 90-day investment horizon REX American Resources is expected to under-perform the Eastman Chemical. But the stock apears to be less risky and, when comparing its historical volatility, REX American Resources is 1.02 times less risky than Eastman Chemical. The stock trades about -0.06 of its potential returns per unit of risk. The Eastman Chemical is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  9,090  in Eastman Chemical on December 27, 2024 and sell it today you would lose (156.00) from holding Eastman Chemical or give up 1.72% of portfolio value over 90 days.

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

REX American Resources  vs.  Eastman Chemical

REX American Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days REX American Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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 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 REX American and Eastman Chemical

The main advantage of trading using opposite REX American and Eastman Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if REX 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 REX American Resources 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.