Correlation Between Select Energy and Eastman Chemical

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

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

Diversification Opportunities for Select Energy and Eastman Chemical

0.04

Correlation Coefficient

Select Energy  Eastman Chemical

Significant diversification

The 3 months correlation between Select and Eastman is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Select Energy Services and Eastman Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastman Chemical and Select Energy 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 Select Energy Services 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 Select Energy i.e., Select Energy and Eastman Chemical go up and down completely randomly.

Pair Corralation between Select Energy and Eastman Chemical

Given the investment horizon of 90 days Select Energy Services is expected to under-perform the Eastman Chemical. In addition to that, Select Energy is 1.42 times more volatile than Eastman Chemical. It trades about -0.13 of its total potential returns per unit of risk. Eastman Chemical is currently generating about -0.02 per unit of volatility. If you would invest  8,998  in Eastman Chemical on December 28, 2024 and sell it today you would lose (293.00) from holding Eastman Chemical or give up 3.26% of portfolio value over 90 days.

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

Select Energy Services  vs.  Eastman Chemical

Select Energy Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days Select Energy Services has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail 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 Select Energy and Eastman Chemical

The main advantage of trading using opposite Select Energy and Eastman Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Select Energy 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 Select Energy Services 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 Transaction History module to view history of all your transactions and understand their impact on performance.