Correlation Between Stepan and Eastern
Can any of the company-specific risk be diversified away by investing in both Stepan and Eastern 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 Eastern into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stepan Company and Eastern Co, you can compare the effects of market volatilities on Stepan and Eastern 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 Eastern. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepan and Eastern.
Diversification Opportunities for Stepan and Eastern
Good diversification
The 3 months correlation between Stepan and Eastern is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Eastern Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern 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 Eastern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern has no effect on the direction of Stepan i.e., Stepan and Eastern go up and down completely randomly.
Pair Corralation between Stepan and Eastern
Considering the 90-day investment horizon Stepan Company is expected to under-perform the Eastern. But the stock apears to be less risky and, when comparing its historical volatility, Stepan Company is 1.66 times less risky than Eastern. The stock trades about -0.03 of its potential returns per unit of risk. The Eastern Co is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 2,085 in Eastern Co on September 1, 2024 and sell it today you would earn a total of 787.00 from holding Eastern Co or generate 37.75% 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. Eastern Co
Performance |
| Timeline |
| Stepan Company |
| Eastern |
Stepan and Eastern Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Stepan and Eastern
The main advantage of trading using opposite Stepan and Eastern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepan position performs unexpectedly, Eastern 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 Eastern will offset losses from the drop in Eastern's long position.The idea behind Stepan Company and Eastern Co 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.| Eastern vs. Timken Company | Eastern vs. Hillman Solutions Corp | Eastern vs. AB SKF | Eastern vs. Kennametal |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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