Correlation Between Albemarle Corp and Eastman Chemical

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

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

Diversification Opportunities for Albemarle Corp and Eastman Chemical

0.48

Correlation Coefficient

Albemarle Corp  Eastman Chemical

Very weak diversification

The 3 months correlation between Albemarle and Eastman is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Albemarle Corp and Eastman Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastman Chemical and Albemarle Corp 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 Albemarle Corp 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 Albemarle Corp i.e., Albemarle Corp and Eastman Chemical go up and down completely randomly.

Pair Corralation between Albemarle Corp and Eastman Chemical

Considering the 90-day investment horizon Albemarle Corp is expected to generate 2.79 times more return on investment than Eastman Chemical. However, Albemarle Corp is 2.79 times more volatile than Eastman Chemical. It trades about 0.11 of its potential returns per unit of risk. Eastman Chemical is currently generating about -0.11 per unit of risk. If you would invest  8,933  in Albemarle Corp on August 20, 2024 and sell it today you would earn a total of  1,420  from holding Albemarle Corp or generate 15.9% return on investment over 90 days.

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

Albemarle Corp  vs.  Eastman Chemical

Albemarle Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Albemarle Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady essential indicators, Albemarle Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Eastman Chemical

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Eastman Chemical are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, Eastman Chemical is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Albemarle Corp and Eastman Chemical

The main advantage of trading using opposite Albemarle Corp and Eastman Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Albemarle Corp 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 Albemarle Corp 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.