Correlation Between Eastman Chemical and Discover Financial

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

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

Diversification Opportunities for Eastman Chemical and Discover Financial

-0.74

Correlation Coefficient

Eastman Chemical  Discover Financial

Pay attention - limited upside

The 3 months correlation between Eastman and Discover is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical Co and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and Eastman Chemical 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 Eastman Chemical Co are associated (or correlated) with Discover Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Discover Financial has no effect on the direction of Eastman Chemical i.e., Eastman Chemical and Discover Financial go up and down completely randomly.

Pair Corralation between Eastman Chemical and Discover Financial

Assuming the 90 days trading horizon Eastman Chemical Co is expected to under-perform the Discover Financial. In addition to that, Eastman Chemical is 1.02 times more volatile than Discover Financial Services. It trades about -0.26 of its total potential returns per unit of risk. Discover Financial Services is currently generating about 0.0 per unit of volatility. If you would invest  17,388  in Discover Financial Services on September 19, 2024 and sell it today you would lose (23.00) from holding Discover Financial Services or give up 0.13% of portfolio value over 90 days.

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

Eastman Chemical Co  vs.  Discover Financial Services

Eastman Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eastman Chemical Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Discover Financial

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Discover Financial Services are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Discover Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eastman Chemical and Discover Financial

The main advantage of trading using opposite Eastman Chemical and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eastman Chemical position performs unexpectedly, Discover Financial 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 Discover Financial will offset losses from the drop in Discover Financial's long position.

The idea behind Eastman Chemical Co and Discover Financial Services 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.