Correlation Between Stepan and Air Products
Can any of the company-specific risk be diversified away by investing in both Stepan and Air Products 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 Stepan and Air Products into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stepan Company and Air Products and, you can compare the effects of market volatilities on Stepan and Air Products 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 Stepan with a short position of Air Products. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepan and Air Products.
Diversification Opportunities for Stepan and Air Products
-0.02 | Correlation Coefficient |
Good diversification
The 3 months correlation between Stepan and Air is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Air Products and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Products and Stepan 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 Stepan Company are associated (or correlated) with Air Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Products has no effect on the direction of Stepan i.e., Stepan and Air Products go up and down completely randomly.
Pair Corralation between Stepan and Air Products
Considering the 90-day investment horizon Stepan Company is expected to generate 2.41 times more return on investment than Air Products. However, Stepan is 2.41 times more volatile than Air Products and. It trades about 0.11 of its potential returns per unit of risk. Air Products and is currently generating about 0.2 per unit of risk. 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 Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Stepan Company vs. Air Products and
Performance |
| Timeline |
| Stepan Company |
| Air Products |
Stepan and Air Products Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Stepan and Air Products
The main advantage of trading using opposite Stepan and Air Products positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepan position performs unexpectedly, Air Products 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 Air Products will offset losses from the drop in Air Products' long position.The idea behind Stepan Company and Air Products and 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.| Air Products vs. PPG Industries | Air Products vs. Ecolab Inc | Air Products vs. Sherwin Williams Co | Air Products vs. LyondellBasell Industries NV |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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