Correlation Between United Natural and Eastman Chemical

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

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

Diversification Opportunities for United Natural and Eastman Chemical

0.75

Correlation Coefficient

United Natural  Eastman Chemical

Poor diversification

The 3 months correlation between United and Eastman is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding United Natural Foods, and Eastman Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastman Chemical and United Natural 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 United Natural Foods, 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 United Natural i.e., United Natural and Eastman Chemical go up and down completely randomly.

Pair Corralation between United Natural and Eastman Chemical

Assuming the 90 days trading horizon United Natural Foods, is expected to generate 50.66 times more return on investment than Eastman Chemical. However, United Natural is 50.66 times more volatile than Eastman Chemical. It trades about 0.16 of its potential returns per unit of risk. Eastman Chemical is currently generating about 0.13 per unit of risk. If you would invest  2,934  in United Natural Foods, on October 23, 2024 and sell it today you would earn a total of  1,206  from holding United Natural Foods, or generate 41.1% return on investment over 90 days.

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

United Natural Foods,  vs.  Eastman Chemical

United Natural Foods,

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United Natural Foods, are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, United Natural sustained solid returns over the last few months and may actually be approaching a breakup point.

Eastman Chemical

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eastman Chemical are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong primary indicators, Eastman Chemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with United Natural and Eastman Chemical

The main advantage of trading using opposite United Natural and Eastman Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Natural 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 United Natural Foods, 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 Stocks Directory module to find actively traded stocks across global markets.