Correlation Between Stepan and Coty
Can any of the company-specific risk be diversified away by investing in both Stepan and Coty 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 Coty into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stepan Company and Coty Inc, you can compare the effects of market volatilities on Stepan and Coty 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 Coty. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepan and Coty.
Diversification Opportunities for Stepan and Coty
Significant diversification
The 3 months correlation between Stepan and Coty is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Coty Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coty Inc 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 Coty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coty Inc has no effect on the direction of Stepan i.e., Stepan and Coty go up and down completely randomly.
Pair Corralation between Stepan and Coty
Considering the 90-day investment horizon Stepan Company is expected to generate 1.23 times more return on investment than Coty. However, Stepan is 1.23 times more volatile than Coty Inc. It trades about 0.06 of its potential returns per unit of risk. Coty Inc is currently generating about -0.07 per unit of risk. If you would invest 7,387 in Stepan Company on August 29, 2024 and sell it today you would earn a total of 215.00 from holding Stepan Company or generate 2.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Stepan Company vs. Coty Inc
Performance |
| Timeline |
| Stepan Company |
| Coty Inc |
Stepan and Coty Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Stepan and Coty
The main advantage of trading using opposite Stepan and Coty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepan position performs unexpectedly, Coty 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 Coty will offset losses from the drop in Coty's long position.The idea behind Stepan Company and Coty Inc 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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