Correlation Between H B and Stepan
Can any of the company-specific risk be diversified away by investing in both H B and Stepan 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 H B and Stepan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between H B Fuller and Stepan Company, you can compare the effects of market volatilities on H B and Stepan 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 H B with a short position of Stepan. Check out your portfolio center. Please also check ongoing floating volatility patterns of H B and Stepan.
Diversification Opportunities for H B and Stepan
Weak diversification
The 3 months correlation between FUL and Stepan is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding H B Fuller and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company and H B 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 H B Fuller are associated (or correlated) with Stepan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stepan Company has no effect on the direction of H B i.e., H B and Stepan go up and down completely randomly.
Pair Corralation between H B and Stepan
Considering the 90-day investment horizon H B is expected to generate 4.12 times less return on investment than Stepan. But when comparing it to its historical volatility, H B Fuller is 1.36 times less risky than Stepan. It trades about 0.04 of its potential returns per unit of risk. Stepan Company is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 7,387 in Stepan Company on August 27, 2024 and sell it today you would earn a total of 393.00 from holding Stepan Company or generate 5.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
H B Fuller vs. Stepan Company
Performance |
| Timeline |
| H B Fuller |
| Stepan Company |
H B and Stepan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with H B and Stepan
The main advantage of trading using opposite H B and Stepan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if H B position performs unexpectedly, Stepan 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 Stepan will offset losses from the drop in Stepan's long position.The idea behind H B Fuller and Stepan Company 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.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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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