Correlation Between Stepan and Griffon

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Can any of the company-specific risk be diversified away by investing in both Stepan and Griffon 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 Griffon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stepan Company and Griffon, you can compare the effects of market volatilities on Stepan and Griffon 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 Griffon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepan and Griffon.

Diversification Opportunities for Stepan and Griffon

0.45
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Stepan and Griffon is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Griffon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Griffon 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 Griffon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Griffon has no effect on the direction of Stepan i.e., Stepan and Griffon go up and down completely randomly.

Pair Corralation between Stepan and Griffon

Considering the 90-day investment horizon Stepan is expected to generate 4.39 times less return on investment than Griffon. But when comparing it to its historical volatility, Stepan Company is 1.87 times less risky than Griffon. It trades about 0.14 of its potential returns per unit of risk. Griffon is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  6,274  in Griffon on September 1, 2024 and sell it today you would earn a total of  2,156  from holding Griffon or generate 34.36% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Stepan Company  vs.  Griffon

 Performance 
       Timeline  
Stepan Company 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Stepan Company are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, Stepan is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.
Griffon 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Griffon are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Griffon reported solid returns over the last few months and may actually be approaching a breakup point.

Stepan and Griffon Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Stepan and Griffon

The main advantage of trading using opposite Stepan and Griffon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepan position performs unexpectedly, Griffon 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 Griffon will offset losses from the drop in Griffon's long position.
The idea behind Stepan Company and Griffon 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 Transaction History module to view history of all your transactions and understand their impact on performance.

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