Correlation Between Stepan and Hafnia
Can any of the company-specific risk be diversified away by investing in both Stepan and Hafnia 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 Hafnia into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stepan Company and Hafnia Limited, you can compare the effects of market volatilities on Stepan and Hafnia 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 Hafnia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepan and Hafnia.
Diversification Opportunities for Stepan and Hafnia
Average diversification
The 3 months correlation between Stepan and Hafnia is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Hafnia Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hafnia Limited 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 Hafnia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hafnia Limited has no effect on the direction of Stepan i.e., Stepan and Hafnia go up and down completely randomly.
Pair Corralation between Stepan and Hafnia
Considering the 90-day investment horizon Stepan Company is expected to under-perform the Hafnia. But the stock apears to be less risky and, when comparing its historical volatility, Stepan Company is 1.15 times less risky than Hafnia. The stock trades about -0.02 of its potential returns per unit of risk. The Hafnia Limited is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 585.00 in Hafnia Limited on September 3, 2024 and sell it today you would earn a total of 245.00 from holding Hafnia Limited or generate 41.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 51.42% |
| Values | Daily Returns |
Stepan Company vs. Hafnia Limited
Performance |
| Timeline |
| Stepan Company |
| Hafnia Limited |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Stepan and Hafnia Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Stepan and Hafnia
The main advantage of trading using opposite Stepan and Hafnia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepan position performs unexpectedly, Hafnia 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 Hafnia will offset losses from the drop in Hafnia's long position.The idea behind Stepan Company and Hafnia Limited 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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