Correlation Between Stepan and Mesa Air
Can any of the company-specific risk be diversified away by investing in both Stepan and Mesa Air 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 Mesa Air into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stepan Company and Mesa Air Group, you can compare the effects of market volatilities on Stepan and Mesa Air 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 Mesa Air. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepan and Mesa Air.
Diversification Opportunities for Stepan and Mesa Air
Significant diversification
The 3 months correlation between Stepan and Mesa is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Mesa Air Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mesa Air Group 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 Mesa Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mesa Air Group has no effect on the direction of Stepan i.e., Stepan and Mesa Air go up and down completely randomly.
Pair Corralation between Stepan and Mesa Air
Considering the 90-day investment horizon Stepan Company is expected to under-perform the Mesa Air. But the stock apears to be less risky and, when comparing its historical volatility, Stepan Company is 3.1 times less risky than Mesa Air. The stock trades about -0.05 of its potential returns per unit of risk. The Mesa Air Group is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 122.00 in Mesa Air Group on August 29, 2024 and sell it today you would lose (10.00) from holding Mesa Air Group or give up 8.2% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Stepan Company vs. Mesa Air Group
Performance |
| Timeline |
| Stepan Company |
| Mesa Air Group |
Stepan and Mesa Air Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Stepan and Mesa Air
The main advantage of trading using opposite Stepan and Mesa Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepan position performs unexpectedly, Mesa Air 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 Mesa Air will offset losses from the drop in Mesa Air's long position.The idea behind Stepan Company and Mesa Air Group 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.| Mesa Air vs. Allegiant Travel | Mesa Air vs. Sun Country Airlines | Mesa Air vs. Frontier Group Holdings | Mesa Air vs. Azul SA |
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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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