Correlation Between Stepan and Alliant Energy
Can any of the company-specific risk be diversified away by investing in both Stepan and Alliant Energy 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 Alliant Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stepan Company and Alliant Energy Corp, you can compare the effects of market volatilities on Stepan and Alliant Energy 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 Alliant Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepan and Alliant Energy.
Diversification Opportunities for Stepan and Alliant Energy
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Stepan and Alliant is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Alliant Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alliant Energy Corp 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 Alliant Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alliant Energy Corp has no effect on the direction of Stepan i.e., Stepan and Alliant Energy go up and down completely randomly.
Pair Corralation between Stepan and Alliant Energy
Considering the 90-day investment horizon Stepan is expected to generate 6.09 times less return on investment than Alliant Energy. In addition to that, Stepan is 1.55 times more volatile than Alliant Energy Corp. It trades about 0.01 of its total potential returns per unit of risk. Alliant Energy Corp is currently generating about 0.09 per unit of volatility. If you would invest 4,864 in Alliant Energy Corp on September 1, 2024 and sell it today you would earn a total of 1,456 from holding Alliant Energy Corp or generate 29.93% 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. Alliant Energy Corp
Performance |
| Timeline |
| Stepan Company |
| Alliant Energy Corp |
Stepan and Alliant Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Stepan and Alliant Energy
The main advantage of trading using opposite Stepan and Alliant Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepan position performs unexpectedly, Alliant Energy 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 Alliant Energy will offset losses from the drop in Alliant Energy's long position.The idea behind Stepan Company and Alliant Energy Corp 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.| Alliant Energy vs. MGE Energy | Alliant Energy vs. CMS Energy | Alliant Energy vs. OGE Energy | Alliant Energy vs. DTE Energy |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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