Correlation Between Stepan and Drilling Tools
Can any of the company-specific risk be diversified away by investing in both Stepan and Drilling Tools 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 Drilling Tools into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stepan Company and Drilling Tools International, you can compare the effects of market volatilities on Stepan and Drilling Tools 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 Drilling Tools. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepan and Drilling Tools.
Diversification Opportunities for Stepan and Drilling Tools
0.21 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Stepan and Drilling is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Drilling Tools International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Drilling Tools Inter 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 Drilling Tools. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Drilling Tools Inter has no effect on the direction of Stepan i.e., Stepan and Drilling Tools go up and down completely randomly.
Pair Corralation between Stepan and Drilling Tools
Considering the 90-day investment horizon Stepan Company is expected to generate 0.94 times more return on investment than Drilling Tools. However, Stepan Company is 1.06 times less risky than Drilling Tools. It trades about 0.14 of its potential returns per unit of risk. Drilling Tools International is currently generating about 0.11 per unit of risk. If you would invest 7,197 in Stepan Company on September 1, 2024 and sell it today you would earn a total of 493.00 from holding Stepan Company or generate 6.85% 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. Drilling Tools International
Performance |
| Timeline |
| Stepan Company |
| Drilling Tools Inter |
Stepan and Drilling Tools Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Stepan and Drilling Tools
The main advantage of trading using opposite Stepan and Drilling Tools positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepan position performs unexpectedly, Drilling Tools 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 Drilling Tools will offset losses from the drop in Drilling Tools' long position.The idea behind Stepan Company and Drilling Tools International 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.| Drilling Tools vs. Sun Life Financial | Drilling Tools vs. National Beverage Corp | Drilling Tools vs. Aegon NV ADR | Drilling Tools vs. Assurant |
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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