Correlation Between Stepan and BJs Restaurants
Can any of the company-specific risk be diversified away by investing in both Stepan and BJs Restaurants 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 BJs Restaurants into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stepan Company and BJs Restaurants, you can compare the effects of market volatilities on Stepan and BJs Restaurants 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 BJs Restaurants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepan and BJs Restaurants.
Diversification Opportunities for Stepan and BJs Restaurants
0.3 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Stepan and BJs is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and BJs Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BJs Restaurants 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 BJs Restaurants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BJs Restaurants has no effect on the direction of Stepan i.e., Stepan and BJs Restaurants go up and down completely randomly.
Pair Corralation between Stepan and BJs Restaurants
Considering the 90-day investment horizon Stepan is expected to generate 15.75 times less return on investment than BJs Restaurants. In addition to that, Stepan is 1.32 times more volatile than BJs Restaurants. It trades about 0.01 of its total potential returns per unit of risk. BJs Restaurants is currently generating about 0.15 per unit of volatility. If you would invest 3,524 in BJs Restaurants on November 8, 2024 and sell it today you would earn a total of 153.00 from holding BJs Restaurants or generate 4.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Stepan Company vs. BJs Restaurants
Performance |
| Timeline |
| Stepan Company |
| BJs Restaurants |
Stepan and BJs Restaurants Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Stepan and BJs Restaurants
The main advantage of trading using opposite Stepan and BJs Restaurants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepan position performs unexpectedly, BJs Restaurants 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 BJs Restaurants will offset losses from the drop in BJs Restaurants' long position.The idea behind Stepan Company and BJs Restaurants 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.| BJs Restaurants vs. Dominos Pizza Common | BJs Restaurants vs. Yum Brands | BJs Restaurants vs. The Wendys Co | BJs Restaurants vs. Wingstop |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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