Correlation Between Diageo PLC and Eastman Chemical
Can any of the company-specific risk be diversified away by investing in both Diageo PLC 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 Diageo PLC and Eastman Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Diageo PLC ADR and Eastman Chemical, you can compare the effects of market volatilities on Diageo PLC 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 Diageo PLC with a short position of Eastman Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diageo PLC and Eastman Chemical.
Diversification Opportunities for Diageo PLC and Eastman Chemical
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Diageo and Eastman is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and Eastman Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastman Chemical and Diageo PLC 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 Diageo PLC ADR 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 Diageo PLC i.e., Diageo PLC and Eastman Chemical go up and down completely randomly.
Pair Corralation between Diageo PLC and Eastman Chemical
Considering the 90-day investment horizon Diageo PLC ADR is expected to under-perform the Eastman Chemical. But the stock apears to be less risky and, when comparing its historical volatility, Diageo PLC ADR is 1.08 times less risky than Eastman Chemical. The stock trades about -0.04 of its potential returns per unit of risk. The Eastman Chemical is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 9,921 in Eastman Chemical on August 28, 2024 and sell it today you would earn a total of 663.00 from holding Eastman Chemical or generate 6.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Diageo PLC ADR vs. Eastman Chemical
Performance |
| Timeline |
| Diageo PLC ADR |
| Eastman Chemical |
Diageo PLC and Eastman Chemical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Diageo PLC and Eastman Chemical
The main advantage of trading using opposite Diageo PLC and Eastman Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diageo PLC 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.| Diageo PLC vs. Brown Forman | Diageo PLC vs. MGP Ingredients | Diageo PLC vs. Duckhorn Portfolio | Diageo PLC vs. Brown Forman |
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Check out your portfolio center.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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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