Correlation Between COSTCO WHOLESALE and Eastman Chemical

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

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

Diversification Opportunities for COSTCO WHOLESALE and Eastman Chemical

0.06

Correlation Coefficient

COSTCO WHOLESALE  Eastman Chemical

Significant diversification

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

Pair Corralation between COSTCO WHOLESALE and Eastman Chemical

Assuming the 90 days trading horizon COSTCO WHOLESALE is expected to generate 2.0 times less return on investment than Eastman Chemical. In addition to that, COSTCO WHOLESALE is 1.36 times more volatile than Eastman Chemical. It trades about 0.07 of its total potential returns per unit of risk. Eastman Chemical is currently generating about 0.19 per unit of volatility. If you would invest  7,903  in Eastman Chemical on March 2, 2024 and sell it today you would earn a total of  1,095  from holding Eastman Chemical or generate 13.86% return on investment over 90 days.

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

COSTCO WHOLESALE CDR  vs.  Eastman Chemical

COSTCO WHOLESALE CDR

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in COSTCO WHOLESALE CDR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, COSTCO WHOLESALE may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Eastman Chemical

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Eastman Chemical are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Eastman Chemical reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with COSTCO WHOLESALE and Eastman Chemical

The main advantage of trading using opposite COSTCO WHOLESALE and Eastman Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if COSTCO WHOLESALE 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 COSTCO WHOLESALE CDR 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.